Multi-jurisdiction guide for screening foreign investments

Europe A-L

1. Country: Austria

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

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

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

3. Legal Framework in Force

Invesment Control Act (Investionskontrollgesetz; ICA)

4. Last revision of the Legal Framework

31.12.2022 (BGBl. I Nr. 231/2022)

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

Formerly the Austrian Foreign Economy Act

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The ICA applies to direct or indirect acquisition of:

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

A foreign investor is:

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

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

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

There are no known loopholes.

7. Scope - screening thresholds

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

See questions 6 and question 8.

The ICA also applies to portfolio investments.

8. Scope - sectors covered

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

Highly sensitive sectors pursuant to the ICA are:

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

Other relevant sectors pursuant to the ICA are:

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

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

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

The ICA also applies to portfolio investments.

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

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

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

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

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

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

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

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

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

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

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

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

See question 11.

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

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

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

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

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

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

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

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

16. Judicial Review

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

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

17. Publication in Official Gazette or other

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

18. Relevant Examples of application

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

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

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

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

N/A

21. Other relevant information

N/A

Contacts: Cristoph Mager and Marc Lager

Last updated June 2023

1. Country: Belgium

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

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

United States
United Kingdom
France
Netherlands
China

3. Legal Framework in Force

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

The Interfederal Screening Commission (ISC) (Interfederale Screeningscommissie/Comité de Filtrage Interfédéral), designated as the public entity responsible for reviewing foreign direct investments into Belgium and whose powers are set out in the cooperation agreement between the various Belgian governments (the Cooperation Agreement), is expected to become effective on 1 July 2023.

It should be pointed out that where the acquisition of control by a foreign investor took place before the entry into force of the Cooperation Agreement (i.e., before 1 July 2023), the ISC can start the assessment and screening procedure ex officio up to two years after the acquisition, and in case of indications of bad faith, up to a maximum of five years, if deemed necessary in light of the protection of public order, national security or strategic interests in Belgium.

4. Last revision of the Legal Framework

Not applicable, since this regime is the first FDI regime in Belgium at federal level.

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

Following the adoption of Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening foreign direct investments in the European Union, on 23 February 2021, as a first step, a draft legislation was proposed at federal level.

The preparatory works to this contemporary legislation indicate that it aims to combat some of the disadvantages that an open economy, such as Belgium, is confronted with. This notably includes reducing the dependency of Belgium on certain goods from non-EU countries and “re-shore” them to Belgium. Moreover, it seeks to reduce the excess circulation of investment capital into financially distressed companies that can be more easily acquired, which are at times involved in strategic sectors or whose activities relate to national security.

The macro-economic tendencies are clear. There is a significant increase in foreign investments by fast-growing economies such as China and India, offshore investors, investments by companies in the hands of foreign governments and a general increase in foreign ownership.

On 1 June 2022, the various Belgian governments, acting as the Consultation Committee (Overlegcomité/Comité de concertation), agreed to a draft cooperation agreement to install a Belgian FDI screening mechanism, which was slightly revised on 30 November 2022. The cooperation agreement was approved on 9 February 2023 by the Federal Parliament and is expected to enter into force on 1 July 2023. This is an important development as the competences for reviewing foreign direct investments are currently dispersed among the various federal governments.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

Only foreign direct investments that can have an effect in Belgium on security, public order or the strategic interests of the regions and communities face potential scrutiny. A foreign direct investment is a broadly defined term, capturing any type of investment made by a foreign investor that creates or is intended to create direct and lasting links with another undertaking, including investments leading to effective participation in the management or control of that undertaking.

Unlike some other EU Member States’ regimes, the Belgian regime will only screen investments made by investors not originating from the EU. The regime will apply to investments made by (i) natural persons with a main residence outside the EU, (ii) undertakings incorporated outside the EU and (iii) undertakings of which the ultimate beneficial owner has its main residence outside the EU. It is clarified that several undertakings that are part of a consortium will be treated as one single foreign investor.

Investments made by a foreign investor in the ambit of setting up new and direct economic activities in Belgium (greenfield investments), while not taking over any existing economic activities, are not captured by the regime.

7. Scope - screening thresholds

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

The regime applies to any acquisition of control, the direct or indirect acquisition of a certain percentage of the voting rights in undertakings or entities incorporated in Belgium already being defined as such (i.e., including investments into a non-Belgian target with a Belgian subsidiary).

More specifically, every direct or indirect acquisition of 25% or more of the voting rights in a Belgian undertaking or entity is reportable, without there being a fixed deal size or turnover threshold for these investments (with one exception) and whose activities relate to:

Critical infrastructure, both physical and virtual, for energy, transport, water, health, electronic communication and digital infrastructure, media, data processing or storage, aerospace, defence, election or financial infrastructure and sensitive facilities, whether or not part of an existing business, as well as the land and real estate crucial for the use of such infrastructure;¹
Technologies and resources of essential importance to public (health) safety, defence and public security,² military equipment subject to the Common Military List of the European Union adopted by the Council on 17 February 2020 (equipment covered by Council Common Position 2008/944/CFSP defining common rules governing the control of exports of military technology and equipment) (the Common Military List) and national control, dual-use items³ and technologies of strategic importance (including related IP rights) regarding artificial intelligence, semiconductors, robotics, cybersecurity, aerospace, defence, energy storage and quantum and nuclear technologies and nano technologies;
Supply of vital inputs such as energy and raw materials and avoiding food shortages;
Access to or control of strategically sensitive information and personal data;
Private security sector;
Freedom and pluralism of the media; or
The biotech sector, on the condition that the target undertaking concerned achieved a turnover of at least EUR25 million in the financial year prior to the investment.

In addition, the regime covers direct and indirect acquisitions of 10% or more of the voting rights in Belgian undertakings and entities whose activities relate to the energy, defence (cf. dual-use items), cybersecurity, digital infrastructure or electronic communication sectors that have realised a turnover of minimum EUR100 million in the financial year prior to the acquisition of 10% of the voting rights.

The different governments in Belgium can, by way of a supplementary executive cooperation agreement between them, decrease the 25% threshold to 10% and increase the 10% threshold to 25% respectively.

Irrespective of the voting rights thresholds above, it should be borne in mind that in principle any acquisition of control (i.e., the ability to exercise decisive influence over an undertaking’s activities) over a Belgian undertaking or entity whose activities relate to the sectors mentioned above fall within the Belgian regime’s ambit. Indeed, the acquisition of control does not necessarily always overlap with the voting rights thresholds, e.g., in case of certain veto rights assigned to a minority stake or in case of asset deals.

¹This includes the critical infrastructures referred to in Regulation (EU) No 1285/2013 of the European Parliament and of the Council of 11 December 2013 on the implementation and operation of the European satellite navigation systems and repealing Council Regulation (EC) No 876/2002 and Regulation (EC) No 683/2008 of the European Parliament and of the Council, in the Act of 1 July 2011 on the security and protection of critical infrastructures, and in the Royal Decree of 2 December 2011 on critical infrastructures in the air transport sub-sector.
²Whose disruption, failure, loss or destruction would have a significant impact on Belgium, an EU Member State or the EU.
³As defined in Article 2(1) of Regulation (EU) 2021/821 of the European Parliament and of the Council of 20 May 2021 setting up a Union regime for the control of exports, brokering, technical assistance, transit and transfer of dual-use items.

8. Scope - sectors covered

Increased exposure to a mandatory FDI notification is imminent when control or a stake of a certain size (as explained in Section 7) is acquired in Belgian undertakings with activities related to one of the following sectors or industries:

Critical infrastructure, both physical and virtual, for energy, transport, water, health, electronic communications, media, (personal) data processing or storage, aerospace, defence, election or financial infrastructure and sensitive facilities, whether or not part of an existing business, as well as the land and real estate crucial for such infrastructure;
Technologies and resources that are of essential importance to public (health) safety, defence and public security, military equipment subject to Common Military List and national control, dual-use items, and technologies of strategic importance (including related IP rights) regarding artificial intelligence, semiconductors, robotics, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies and nano technologies;
Supply of critical inputs such as energy, resources and avoiding food scarcity; and
Private security, strategically sensitive information and personal data, freedom and pluralism of media or biotech sectors.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

For investments captured under the Belgian regime, notification to the ISC by the foreign investor is mandatory and the process suspends closing. The regime applies to the acquisition of control and direct and indirect acquisitions of a certain percentage of the voting rights in undertakings or entities incorporated in Belgium (i.e., including investments into a non-Belgian target with a Belgian subsidiary).

For example, and as indicated previously, if an investment into a non-Belgian target occurs who has a subsidiary in Belgium, this may also trigger a filing.

Moreover, the ISC can start investigations ex officio into closed deals up to two years (up to five years in cases of bad faith) after the investment’s implementation. Finally, the ISC can initiate investigations on its own initiative if it finds there are reasons to suspect that an investigation is warrranted for safeguarding public order and national security as well as its strategic interests.

10. Design – reciprocity?

The Belgian legislative text does not, at present, mandate nor require reciprocity.

11. Design – Procedures and Deadlines

Investments falling within the scope of the regime, must be notified to the ISC secretariat which is represented by all three Belgian governments (the federal, regional and community levels) and organisationally and administratively sits within the Belgian Ministry of Economic Affairs. A member of the ISC is only competent when there is (i) a territorial nexus (registered office, economic activity, presence of certain infrastructure) and (ii) a potential impact on their material competencies. The notification can be done by letter, e-mail or through physical deposit.

The review process can involve two or even three phases, after a pre-notification phase, during which the ISC secretariat can already submit requests for information to the parties involved in the transaction and to third parties, if deemed useful. There is no statutory time limit for the pre-notification phase, similarly to merger control, which lasts until the notification is deemed complete and thus ready to be formally filed.

Notification process

Phase 1 – Assessment

Phase 1 is the assessment phase where the foreign investment is preliminarily examined and lasts 30 days. The clock starts running once the secretariat of the ISC considers the notification complete. A general review of the investment will be conducted by the competent members of the ISC, verifying whether the main characteristics of the foreign investor, the change of control over the target company or the resulting significant changes in the ownership structure pursuant to the proposed foreign direct investment can have a potential impact on public order, security or strategic interests in Belgium.

If no concerns are identified, the ISC will close the assessment and issue a positive decision whereby the transaction is approved. Whenever additional information is requested by the ISC, the 30-day period is put on hold. In case the 30-day period is exceeded without the ISC taking a decision, the foreign investment is deemed to be approved.

Phase 2 - Screening

If one of the members of the ISC identifies concrete concerns or risks for public order, security or strategic interests (e.g., based on entities controlled by foreign governments, past involvement in risky activities or the serious risk that the foreign investor is involved in criminal or otherwise illegal activities), the ISC will proceed to the actual screening of the foreign investment (Phase 2). The screening phase involves an in-depth and additional risk analysis and results in an advice to the respective ministers of the competent government bodies.

The secretariat of the ISC informs the foreign investor and the Belgian undertaking concerned that they may inspect the file at the secretariat and obtain an electronic copy. The foreign investor and the Belgian undertaking concerned have 10 calendar days from the day on which the copy is made available to submit their written comments. This period has a suspensory effect in relation to the 20 calendar days period in which the ISC member(s) have to provide the advice to the relevant minister, commencing after the decision to open a screening procedure was notified to the notifying party(ies). This period can be extended up to several months, in case of written comments, oral hearing(s), mitigating measures, a significant complexity of the file or requests for additional information by the ISC, the European Commission or other Member States.

Upon receipt of the advice by the ISC member(s), the relevant ministers have 6 calendar days to decide and consequently notify their decision to the ISC. Within 2 calendar days after receipt of said decision(s), the ISC will combine them (if multiple federal bodies are competent) and notify the foreign investor of the decision.

If the foreign investment falls within the jurisdiction of more than one of the federal bodies, decisions to prohibit the foreign investment must be taken unanimously, save the veto right of the federal minister to prohibit the foreign investment nonetheless should it fall within its powers and competencies.

If no decision is made within these time limits, the transaction is deemed to be tacitly approved.

Ex officio investigation

At the request of a competent member of the ISC, a procedure will be initiated ex officio if a foreign investor wishes to acquire a participation through a foreign direct investment. The companies concerned or their representatives are notified of such an investigation only if the ISC secretariat indicates that the companies should make a formal notification.

In the event of non-compliance with the notification requirement, the ISC, at the request of at least one of its competent members, will initiate a procedure ex officio. Where an ex officio procedure is initiated, structural adjustments and remedial measures may be imposed on the parties at the end of this procedure for up to two years after the acquisition of non-notified control. In case of indications of bad faith, this period is extended to five years, even before the entry into force of the Cooperation Agreement (i.e., before 1 July 2023).

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

The notification involves the submission of certain transaction documents (in signed or even draft form in case the parties explicitly declare that the draft agreement will not signficantly differ from the one they intend to conclude) to the ISC. Although there is no specific notification form available at present and the ISC can issue additional requests for information, the notification should certainly include the following information on the envisaged transaction:

ownership structure of both the foreign investor and the target company (e.g. identity, participation in the capital and the ultimate beneficial owner of the foreign investor);
approximate value of the investment, including the underlying valuation methods and elements used;
products, services and business activities of the foreign investor (at group level) and the target company, specifying in which EU and third countries these activities take place;
how the investment is financed and the origin of such financing; and
the expected closing date.

Following the procedure, a report is prepared containing only non-confidential elements of the screening procedure, to be implemented in the annual report that Belgium must send to the European Commission as required by the FDI Regulation. This includes information on the investment itself, corrective measures mandated, or negative decisions adopted, if relevant.

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

Positive decision – Approval

The ISC can issue a positive decision granting clearance for the foreign direct investment to occur.

Conditional positive decision – Remedies

To address any risks identified by the ISC, foreign investors can offer different types of remedies, both behavioural and structural. More than a dozen measures are suggested to mitigate the expected impact of the foreign direct investment, potentially clearing the way for a conditional positive decision. Foreign investors may be exposed to various governance and compliance requirements such as codes of conduct or safety protocols, information and IP transfer barriers and an obligation whereby it is ensured that said information and IP rights remain available for use in Belgium. Said measures have to be proportional with the aim of reducing the risk to national security, public order or strategic interests to such an extent that the investment can be deemed admissible.

Negative decision – Block

In case no remedies can alleviate the concerns of possible negative effects on public order, national security or strategic interests, the ISC can block the foreign investment. The competent ISC members must reach unanimity to block a decision, yet the Federal Minister retains a veto within the boundaries of its own powers and competencies.

Fines

Foreign investors expose themselves to fines up to 30% of the investment value in case of a failure to notify, for prematurely implementing the foreign investment, for providing incorrect or misleading information or for non-compliance with imposed remedies. Fines of up to 10% of the investment value can be imposed in case of providing no or incomplete information, providing information untimely or in case spontaneous notice is given of a non-notified foreign investment within 12 months after its implementation. In any event, the natural person or undertaking exposed to a fine can formally oppose the ISC’s fine.

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

In case any FDI review process by the Belgian authorities runs in parallel with the applicable merger control regime(s), at Belgian or EU level, it is key that these are carefully coordinated. Inevitably, the FDI notification process and stand-still obligation will stretch the M&A closing timeline and impact the associated transactional documents notably on closing conditions to a similar extent as merger control. From a more practical stance, the FDI rules may impact an auction process as it may disadvantage foreign investors to step into an auction process based on the uncertainty of FDI authorisation.

Since 1 January 2019, the Flemish goverment has set up an FDI framework that provides for an ex-post screening mechanism for foreign direct investments originating outside the EU or EEA into companies that are controlled by Flemish governmental institutions or local authorities or otherwise set up under public law and which are established for fulfilling public interests. When certain conditions are fulfilled, the Flemish government can block a transaction if it leads to a foreign company acquiring control or any other decision-making power in a Flemish government institution, thereby threatening Flanders’ strategic interests or overall independence. However, no actual decisions have been made under this framework to date.

Timing of the procedure can also be impacted by the entry into force of Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (EU Foreign Subsidies Regulation) in which the European Commission has exclusive competence.

An FDI transaction into Belgium can be blocked when it puts at risk:

the continuity of key processes in the sensitive sectors mentioned under Section 7, which, in such event, would constitute a threat to national security, strategic interests and the quality of life of the Belgian population as a result of serious societal disturbances;
the integrity or exclusivity of the knowledge, technologies and information associated with these pivotal processes; or
making Belgium strategically dependent.

16. Judicial Review

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

The foreign investor and the target undertaking are in a position to lodge an appeal against a negative decision of the ISC with the Brussels Market Court, within a period of 30 days after receipt of the ISC’s decision.

The Brussels Market Court has competence over the case both in law and in fact, shall judicate by way of summary proceedings, and has the power to annul a challenged negative decision. It also retains unlimited jurisdiction over fines imposed by the ISC and can annul or adjust said fine upwards and downwards.

If the Market Court annuls all or part of a negative decision, the case is sent back to the ISC where the foreign investment is re-examined through a new screening procedure.

An appeal does however not in itself suspend the ISC’s decision. Nevertheless, the interested party can specifically request the Market Court to do so in case there are serious consequences if the ISC’s decision be executed immediately.

17. Publication in Official Gazette or other

No official publication in the Belgian Official Gazette has yet occurred, yet the enforcement and review powers of the ISC are expected to become effective as of 1 July 2023.

18. Relevant Examples of application

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

No relevant examples of application are available, as the enforcement and review powers of the ISC are expected to become effective only as of 1 July 2023 save its possibility to, for foreign investments made before that date, start the assessment and screening procedure up to two years after the acquisition, if deemed necessary in light of the protection of public order, national security or strategic interests in Belgium.

19. Stakeholders views on the Legal Framework

According to the large majority of stakeholders, significant deal uncertainty is on the horizon since no relevant examples of application yet exist and it is unforeseeable how the regime will affect transactions.

As indicated previously, the Belgian FDI notification process and stand-still obligation will stretch the M&A timeline and impact the associated transactional documents notably on closing conditions to a similar extent as merger control or in application of the EU Foreign Subsidies Regulation.

Access to the EU, and more specifically, Belgium, is hampered and complexified for candidate investors located outside the EU, as EU investors are not subject to the Belgian FDI regime, putting the former at a competitive disadvantage and potentially making them refrain from investing altogether given the uncertainty of FDI authorisation.

20. Interplay with the future EU Regulation

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

Not applicable, since the Belgian legislation is largely based on the EU Regulation that precedes it and no prior legislation at Belgian national level was in place.

21. Other relevant information

N/A

Contacts: Joost Haans and Sander De Volder

Last updated June 2023

1. Country: Czech Republic

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

The latest official statistics are as of 31 December 2021 – statistics from the Czech National Bank:

Netherlands (17,5%)
Luxembourg (15,4%)
Germany (14.5%)
Austria (10.1%)
France (7.1%)

3. Legal Framework in Force

International framework

Bilateral investment treaties (BITs)
Multilateral agreements
ICSID (International Centre for Settlement of Investments Disputes)
Convention MIGA (Multilateral Investments Guarantee Agency)
Convention Agreement on Trade
Related Investment Measures (TRIMs)

EU legislation

Regulation (EU) 2019/452 establishing a framework for the screening of FDI into the Union (FDI Regulation).

National legislation

Czech Act No. 72/2000 Coll., on Investment Incentives, as amended (partially relevant); and
Act No. 34/2021 Coll., on Screening of Foreign Investment which implements delegated areas arising from the EU Regulation (Czech FDI Act).

4. Last revision of the Legal Framework

ICSID Convention entered into force on 14 October 1966
MIGA Convention last amendment on 14 November 2010
TRIMs Agreement entered into force in 1995
FDI Regulation last amendment on 23 December 2021
Czech FDI Act entered into force on 1 September 2021

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

Former Czech Act No. 219/1995 Coll., the Foreign Exchange Act, as amended – abolished on 18 October 2016.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The Czech FDI Act specifies the sectors that are subject to potential screening procedures. These sectors are usually connected to the strategic or safety interests of the Czech Republic (please see section 7).

The regulation applies to all investors residing outside of the EU, including European entities which are controlled (directly or indirectly) from outside of the EU. The Czech FDI Act stipulates that the Ministry of Industry and Trade (Ministry) requires an investor who applies for an authorization of the FDI to provide full disclosure of the information including the complete ownership structure and the source of financing (please see section 12).

Standalone internal restructurings which do not involve a change of control (which are not connected to a separate third party transaction) are not exempted from the Czech FDI Act (even though such transactions do not raise any national security risk). In such cases, it is recommended to file for voluntary consultation to the supervisory authority which may, on a case by case basis, allow the acquisition to proceed without any FDI clearance, or to conduct the FDI clearing proceedings.

7. Scope - screening thresholds

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

General threshold of direct or indirect acquisition or a possibility of disposal with 10% or more of the voting rights of the target applies (i.e. effective influence under Section 5 of the Czech FDI Act).

The Czech FDI Act further provides general criteria that are closely related to the national security which are classified as follows:

FDI requiring authorization (Section 7 of the Czech FDI Act)

The authorization is necessary for the acquisition of control of the businesses that operate in nationally strategic fields, in particular:

manufacture, research or innovation of military material;
operation of an element of critical infrastructure as designated by state authority;
the administrator of the critical informational system or communicational infrastructure; and
developer or manufacturer of dual-use items (for civil and military use), listed in Annex IV to the Regulation (EC) 428/2009.

These criteria are then further specified across Czech or EU legislation (e.g. a critical infrastructure is a power plant with a total installed electrical capacity of at least 500 MW, or a power plant with a total installed capacity of at least 200 MW, etc.)

FDI that may be screened ex officio (Section 8 of the Czech FDI Act)

Other FDI that has the potential to jeopardise the security of the Czech Republic or its internal or public order may also fall within FDI screening. In this case, the prior authorization is not required but the Ministry may commence the screening procedure ex officio within five years after the completion of the FDI. The terms “national security”, “internal order” and “public order” are not defined by the Czech law which leads to uncertainty for investors.

The Explanatory Report to the Czech FDI Act states the following aspects of the target entity that are taken into account when assessing the aspects of the FDI:

access to the energy, transport, health, communication, defence, cybersecurity, aviation, media;
information infrastructure, technology or dual-use items;
access to the supply that relates to the energy, raw material or food;
providing access to information that is important in terms of protecting the security of the Czech Republic or internal or public order, including personal data, or the ability to control such information;
providing access to information that is important in terms of protecting the security of the Czech Republic or internal or public order, including personal data, or the ability to control such information;
possibility to significantly influence public opinion;
critical information infrastructure, significant information systems and essential services;
non-military objects important for the defence of the state; and
other technologies, the misuse of which could endanger the security of the Czech Republic or internal or public order, or other facts that are important for the security of the Czech Republic or internal or public order.

8. Scope - sectors covered

The sectors that are covered by the Czech FDI Act are usually related closely to business of strategic and military importance which if compromitted by FDI would cause a direct threat to the security of the Czech Republic and its public or internal order.

In this sense, the critical infrastructure that requires FDI screening under Section 7 of the Czech FDI Act (please see section 7), provided that sector-specific thresholds are met, includes the following sectors:

electricity production, transfer and distribution, including gas, oil and heat
water management and supply
food and agriculture, including crop production, animal production and food production
healthcare, including provision of health services and production of medicinal products
transport, including road, rail and air transport and inland water transport
communication and information systems, including technological elements of a fixed network of electronic communications, of the mobile network of electronic communications, of networks for radio and television broadcasting, for satellite communication, for postal services, of information systems and the area of cyber security
financial market and currency, including banks and insurance
emergency services, including integrated rescue system, radiation monitoring, forecasting, warning and reporting service and internal security
public administration, including public finance, social protection and employment, intelligence services and other state administration

Other sectors may be covered under Section 8 of the Czech FDI Act that are not determined by law, however general consideration related to national security should be taken into consideration Act (please see section 7).

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

Taking into account the different sensitivity of some sectors, the Czech FDI Act establishes:

(a) A mandatory screening mechanism for FDI targeting key areas for protection of essential security interests of the Czech Republic (see the FDI requiring authorization above). These investments need pre authorization.

(b) Both are covered because the key aspect is the threshold of control or influence over the target entity’s 10% or more voting rights.

(c) Voluntary pre-screening mechanism is established for other potentially risky FDI in certain sectors (please see section 7) where investors may avoid the subsequent ex officio screening procedure by commencing a consultation process with the Ministry before completion of the FDI. In case the target entity has a TV or radio broadcasting license or is a periodical print publisher whose aggregate minimum average printed load is 100,000 copies per day for the last calendar year, the consultation is mandatory (Section 10(1) of the Czech FDI Act).

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

Pre-screening procedure – Consultation (Section 10 of the Czech FDI Act)

The Ministry has 45 days from the commencement of the process of consultation to initiate a screening procedure, otherwise the FDI is deemed permissible.

Screening procedure (Sections 11–13 of the Czech FDI Act)

The screening of FDI is supervised by the Ministry in cooperation with other national entities – Ministry of Foreign Affairs, Ministry of Finance, Ministry of Defence, Ministry of Interior, Czech Police, Czech Intelligence Service and concerned EU Member States. Those authorities provide the Ministry with their statement regarding the FDI.

If particular or all aspects of the FDI are assessed as pertaining to national security, the Ministry shall lead an official negotiation with the investor. Such negotiation aims to amend the original intent of the FDI to avoid the potential endangerment of national security. During the negotiations the limitation time periods are interrupted. At the end of the negotiations, the Ministry may issue a decision on authorization of the FDI. If the potential danger remains, the Ministry shall submit a proposal of the decision to the Czech government.

The Ministry has 90 days (in justified cases it may be prolonged by 30 extra days) to conclude the screening procedure by authorizing the FDI or by filing a proposal for a final decision to the government, who has another 45 days to issue a decision.

The decision issued in the screening proceeding may be revised by a court. The application for revision must be filed within two months after the decision was delivered.

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

At the beginning of the screening procedure, the investor must disclose the information that is set out in the relevant form (Section 9 of the Czech FDI Act), in particular:

identification information about the company and its bodies;
complete ownership structure of the investor himself and the target entity, including the identity of the person or persons who are the ultimate investors and their shares;
the source of the investment´s financing and the total amount;
entrepreneurial activities, including the information on the sector-specific regulation, conducted in the country of the origin;
the date of the completion of the FDI;
direct or indirect share of the voting and proprietary rights of the target prior and after the FDI; and
list of EU Member States where the investor already operates.

The Ministry may additionally require the investor to disclose any other information that it considers important. Documents that are reviewed during the proceedings and contain classified or confidential information are held separately from the file and are not accessible to the public or the investor.

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

The final decision in the screening procedure may be issued by the Ministry if there are no doubts about its permissibility (please see section 11). In case discrepancies are found during the proceedings, the Czech government may issue the following decision on (Sections 14, 15 of the Czech FDI Act):

conditional authorization of the FDI;
conditions of the FDI;
refusal to issue an authorization of the FDI;
prohibition of the FDI; and
unwinding (cancellation) of the FDI.

The unwinding of the already realized FDI is usually exercised via restriction in proprietary or voting rights or forced sale.

If the investor does not comply with the conditions of the authorization of the FDI, the Ministry may impose a fine in the amount of up to 2% of the total turnover of the investor in the last completed accounting period, or between CZK 100,000 (approx. EUR 4,000) and CZK 100 million (approx. EUR 4 million) if the turnover cannot be ascertained. In case the investor completes the FDI without previous authorization, the Ministry may impose a fine in the amount of up to 1% of the total turnover of the investor in the last completed accounting period, or between CZK 50,000 (approx. EUR 2,000) and CZK 50 million (approx. EUR 2 million) if the such turnover cannot be ascertained.

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

The Czech Act No. 181/2014 Coll., on Cybersecurity, as amended, and the Czech Act No. 240/2000 Coll., on Crisis Management, as amended, may provide the investors or the Ministry with sector-specific definitions and may help with interpretation of the Czech FDI Act.

Please see section 7 and section 8.

16. Judicial Review

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

The final (effective) decision issued in the screening proceeding may be revised by a court. The application for revision must be filed within two months after the decision was delivered. The proceedings will be governed by administrative procedural rules. The applicant may seek annulment of the decision. The action against the decision generally does not have a suspensive effect (delaying the decision’s effectiveness).

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

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

N/A

19. Stakeholders views on the Legal Framework

The Czech legislative authorities (i.e. Parliament and government) have expressed support for the intention of the EU Council to regulate FDI.

Inclusion of intra-group restructuralisation is criticised.

20. Interplay with the future EU Regulation

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

Czech FDI Act is compliant with EU Regulation.

Possible amendment may be considered in relation to the intra-group restructuralisation as these have been exempted in some of the EU countries recently (e.g. certain intra-group reorganizations are not deemed a triggering event in Germany). Currently, however, no amendment is deliberated on.

21. Other relevant information

N/A

Contacts: Miroslav Dubovsky, Tomáš Ščerba and Ondrej Chlada

Last updated June 2023

1. Country: Denmark

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

According to the Danish National Bank, the United States of America (USA) was the biggest FDI country in Denmark in 2021. Investors from USA made up 27% of the foreign investments in Denmark. The second biggest FDI country in Denmark was Sweden. The third biggest FDI country in Denmark was Norway. The fourth and fifth biggest FDI countries in Denmark were the United Kingdom and Finland, respectively.

3. Legal Framework in Force

Rules on foreign direct investments

The Danish Act No. 842 of 10 May 2021 on screening of certain foreign direct investments etc. in Denmark (the Investment Screening Act) entered into force on 1 July 2021. The Act applies to certain investments and agreements completed on or after 1 September 2021. The Danish rules on foreign direct investment (FDI) screening and authorisation (approval) also comprise three executive orders set under the Investment Screening Act:

The executive order on the delimitation of the scope of application of the Act on screening of certain foreign direct investments etc. in Denmark (the Executive Order on Application).
The executive order on procedures etc. when applying for authorisation for or notification of certain foreign direct investments or special financial agreements in Denmark (the Executive Order on Procedures).
The Executive Order on the transfer of confidential information about certain foreign direct investments etc. in Denmark to other authorities (the Executive Order on Confidential Information).

The Investment Screening Act and the associated executive orders provide the regulatory framework for screening and authorisation of foreign direct investments in Denmark (the FDI rules).

Sector-specific screening mechanisms

The FDI rules do not apply to investments comprised by other Danish rules on any sector-specific screening and authorisation mechanism for foreign direct investments. Such other sector-specific screening rules include rules thereon in the following acts and regulations:

The War Material Act under the Ministry of Justice. This Act applies to material designed for military use (and which cannot be used for civilian purposes) and ammunition which can be used for military purposes.
The Continental Shelf Act under the Ministry of Climate, Energy and Utilities. This Act applies to Danish and foreign companies that want to lay power cables or pipelines to transport foreign-produced hydrocarbons on Danish maritime territory.
For the telecommunications industry, there is sector-specific regulation concerning suppliers in critical telecommunication infrastructure under which suppliers must notify the Danish Centre for Cyber Security prior to negotiating agreements concerning the infrastructure.

4. Last revision of the Legal Framework

The FDI rules have not been revised since entering into force on 1 July 2021. However, on 3 May 2023 the Danish government has introduced a bill to amend the Investment Screening Act. The Danish government has also announced an intention to amend the associated executive orders.

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

Denmark is dependent on foreign markets and global trade as a small and open economy. Thus, among others, investments by foreign investors are essential for Denmark's growth, productivity and competitiveness. However, in recent years, there has been a tendency in the European Union (EU) for foreign investors who are under the influence of foreign governments to make investments in strategic assets and emerging markets. Such investments may be made by foreign governments and powers to strengthen their security policy position globally. Consequently, certain foreign investments in Danish companies may have underlying non-commercial and strategic intentions and political aims.

On this basis, the Danish government has identified a need to be able to protect national security interests in connection with certain foreign investments and other economic activities. In order to screen foreign investor’s activities in Denmark, the Danish parliament adopted the Investment Screening Act. Many of Denmark’s partners and allies in the EU and the North Atlantic Treaty Organization (NATO) have introduced similar screening mechanisms in recent years. The Investment Screening Act must also be seen in the light of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (the EU FDI Regulation), which entered into force in October 2020.

The main objective of the FDI rules is to prevent foreign direct investments and certain agreements from posing a threat to national security or public order in Denmark. The Danish Business Authority (the DBA) has the competence to screen foreign direct investments in Denmark.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The FDI rules entail two screening mechanisms: (1) A mandatory authorisation scheme for investments in particularly sensitive sectors and activities. (2) A voluntary notification scheme for other sectors. Both schemes apply to foreign investors who intend to undertake a foreign direct investment or conclude a special financial agreement (together transactions) with a Danish company or entity.

Foreign investors covered by the mandatory authorisation scheme

The mandatory authorisation scheme covers foreign direct investments and special financial agreements undertaken by a foreign investor in or with a Danish company or entity operating within a particularly sensitive sector. Both intra-EU and extra-EU transactions are covered by the mandatory authorisation scheme depending on whether the intended transaction is a foreign direct investment or a special financial agreement.

If a foreign investor intends to undertake a foreign direct investment in a Danish company or entity, the following foreign investors are covered by the mandatory authorisation scheme:

Foreign (non-Danish) citizens.
Companies not domiciled in Denmark, even if the foreign company has a permanent establishment in Denmark.
Companies domiciled in Denmark if the company is a subsidiary or a branch of a company not domiciled in Denmark.
Companies domiciled in Denmark if a foreign citizen or a company, which is not domiciled in Denmark, has control over or significant influence in the company.
National authorities and public bodies in countries which are not EU countries or European Free Trade Association (EFTA) countries, including public institutions and publicly owned investment funds.
Certain associations, non-commercial foundations and similar legal persons established in countries which are not EU countries or EFTA countries.

If a foreign investor intends to enter into a special financial agreement with a Danish company or entity, the following investors are covered by the mandatory authorization scheme:

Citizens from countries which are not EU countries or EFTA countries.
Companies domiciled in countries which are not EU countries or EFTA countries.
Companies domiciled in Denmark or other EU countries or EFTA countries if the company is controlled by a person or a company domiciled in a country which is not an EU country or an EFTA country.
National authorities and public bodies in countries which are not EU countries or EFTA countries, including public institutions and publicly owned investment funds.
Certain associations, non-commercial foundations and similar legal persons established in countries which are not EU countries or EFTA countries.

On 3 May 2023, the Danish government proposed a bill amending the Investment Screening Act. If passed in its current form, certain public procurement contracts will be subject to intensified screening after 1 July 2023. The bill provides for an intensified control with companies which establish (construct), own, operate, service or provide products or services in relation to critical infrastructure in Denmark, in particular a planned new energy island in the North Sea. A special authorisation scheme is introduced. It comprises companies which intend to make a public procurement contract regarding critical infrastructure with a public contracting authority. The authorisation scheme will apply to all foreign contracting parties, including companies from EU and EFTA countries. Under specific circumstances, subcontractors to a contracting party may also be subject to screening. Under the bill, the minister has authority to decide that all bidders in a public tender are subject to screening prior to the announcement of the winning bid. Initially, the new authorisation scheme will only apply to public procurement contracts related to the planned new energy island in the North Sea. However, the scope of application of the scheme may later be expanded to cover all critical infrastructure.

Foreign investors covered by the voluntary notification scheme

Foreign investors covered by the voluntary notification scheme are identical to the foreign investors covered by the rules on special financial agreements under the mandatory authorisation scheme. Thus, the voluntary notification scheme applies to investors domiciled in countries which are not EU or EFTA countries, and to investors controlled by companies or persons domiciled in countries which are not EU or EFTA countries, who intend to undertake a foreign direct investment or conclude a special financial agreement with a Danish company or entity with activities not considered particularly sensitive.

7. Scope - screening thresholds

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

Thresholds of the mandatory authorisation scheme

The mandatory authorisation scheme covers foreign direct investments, including greenfield investments, and special financial agreements.

With regards to foreign direct investments, the mandatory authorisation scheme applies to a foreign investor who intends to acquire at least 10% of the ownership interests or voting rights or equivalent control by other means in a Danish company operating within a particularly sensitive sector. The foreign investor must apply for an authorisation of the investment granted by the DBA prior to completion. The scheme also covers cases where an investor obtains similar control in a Danish company or entity by other means. Similar control by other means may for example be obtained by agreement-based control or influence; including by the right to appoint board members; by the right to make significant managerial, operational, financial or development decisions in the company; by purchasing assets in the Danish company or entity; or by providing a long-term loan to the Danish company or entity.

For investors who own an existing shareholding or voting rights in a Danish company operating within a particularly sensitive sector, an increase in shareholding or voting rights may be comprised by the mandatory authorisation scheme. This is the case if the foreign investor’s shareholding or voting rights in the Danish company will amount to 20%, 1/3rd, 50%, 2/3rds or 100% after the acquisition.

Foreign investors who intend to establish a new Danish company or invest in part of the establishment of a company, that is to conduct a greenfield investment, fall within the mandatory authorisation scheme provided that the total capital injection by the foreign investor in the Danish company within the first three financial years from its establishment amounts to DKK75 million or more. Capital injection is defined as the inflow of equity and long-term irrevocable loan financing.

Foreign investors who intend to conclude a special financial agreement, that is a joint venture, supplier, operating or service agreement, with a Danish company or entity operating within a particularly sensitive sector are covered by the mandatory authorisation scheme provided that the agreements entails that the investor achieves control of or significant influence through the agreement in a Danish company or entity or business-critical areas of the company or entity, for example development activities. On 3 May 2023, the Danish government proposed a bill amending the Investment Screening Act. If passed in its current form, a foreign investor, that is a contracting party, who intend to make a special financial agreement, which is a public procurement contract related to a planned energy island in the North Sea, may be subject to screening even in the event that the agreement does not confer control to the foreign investor.

Thresholds of the voluntary notification scheme

The foreign investor may submit a voluntary notification to the DBA if the investment constitutes or may constitute a threat to national security or public order in Denmark, and the foreign investor directly or indirectly acquires at least 25% of the ownership interests or voting rights or equivalent control by other means in the company or entity in Denmark.

8. Scope - sectors covered

Sector-specific mandatory authorisation scheme

The authorisation requirement within particularly sensitive areas includes foreign direct investments in the following companies and entities in Denmark:

All commercial companies in Denmark regardless of organisational form.
Public authorities and institutions in the field of critical infrastructure, which constitutes one of the particularly sensitive sectors.

The mandatory authorisation scheme only applies if the Danish target company or entity concerned is doing business in one of the particularly sensitive sectors or with one of the particularly sensitive activities. The sectors and activities generally include activities within the national defence, IT security functions, processing of classified information, production of dual-use products, other critical technology and critical infrastructure.

Critical infrastructure includes companies and entities which are performing activities which are necessary to maintain or restore certain functions which are important for society within certain sectors. The determination of the sectors, activities and functions which are comprised by the rules on critical infrastructure may give, and in practice often gives, rise to difficulties when it is assessed whether a company is comprised by the rules, that is to say whether the goods or services provided by the company are necessary in order to maintain or restore a specific function in a specific sector. In our current experience, the Danish authorities interpret the scope of application of the rules on critical infrastructure rather broad. For example, companies producing equipment or components used in critical sectors may be captured by the definition.

General voluntary notification scheme

The voluntary notification scheme applies to foreign direct investments in, and special financial agreements concluded with, Danish companies and entities which are not comprised by the particularly sensitive sectors of the mandatory authorisation scheme.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

Under the FDI rules, a mandatory approval requirement applies to foreign investors who directly or indirectly acquire no less than 10% of the shares or voting rights or similar control by other means in a company based in Denmark operating within certain particularly sensitive sectors. Transactions covered by the scope of the mandatory authorisation scheme must be approved by the DBA prior to completion.

Transactions which are notified under the voluntary notification scheme may be submitted before or after completion. However, if the transaction has already been completed, the DBA can launch a detailed investigation of the transaction if the transaction could pose a threat to national security or public order for up to 5 years from completion of the transaction.

10. Design – reciprocity?

The issue of reciprocity is generally not addressed in the FDI rules.

However, when the DBA assesses whether an intended transaction may constitute a threat to national security and public order in Denmark, the DBA bases its decision on certain criteria. One of the criteria is whether the foreign investor is or has been involved in activities affecting national security or public order in another EU member state or another allied country. These criteria are similar to the criteria set forth in the EU FDI Regulation.

11. Design – Procedures and Deadlines

Upon receipt of a complete filing, the DBA examines whether the investment or the financial agreement constitutes a threat to national security or public order in Denmark. This applies to all investments or agreements no matter whether they are subject to the mandatory authorisation scheme or the voluntary notification scheme.

The DBA bases the assessment on information regarding the target company or entity, the immediate foreign investor and the ultimate foreign investor. In relation to the foreign investor, the DBA will, among other matters, base its assessment and decision on whether the investor is directly or indirectly controlled by a foreign government, body or armed forces, through ownership, financing or other means of control, or is involved or has been involved in activities affecting the national security or public order in another EU member state or allied country of Denmark.

If a transaction does not constitute a threat to national security or public order, the DBA grants an authorisation. In our experience, the DBA will very often grant an authorisation of the investments. An authorisation may be granted subject to certain commitments proposed by the foreign investor.

If the DBA finds that an investment or agreement may pose a threat, the application is then submitted to the Minister for Industry, Business and Financial Affairs (the Minister). After any relevant consultations with other ministers, the Minister makes a decision on whether the minister grants or does not grant an authorisation for the investment or agreement.

The DBA shall provide its decision within 60 working days from the day a complete application is received. This time limit may be extended by an additional 30 working days if further investigations are required or commitments are proposed by the investor. Under the mandatory authorisation scheme, there are no implications if the case handling of the DBA exceeds the deadline of 90 working days. Under the voluntary notification scheme, the transaction is automatically approved if the deadline is exceeded. The Danish government has proposed a bill on amendment of the Investment Screening Act. If passed in its current form, the time limit for the DBA’s case processing process will be changed from 1 July 2023. A two-phase system will be introduced. The time limit for the phase 1 investigation will be 45 working days from the receipt of a certification of completeness. If the phase 1 investigation gives rise to an assumption that the investment or agreement may constitute a threat to the national security or public order, a phase 2 investigation will be performed. The time limit for the phase 2 investigation is 125 working days.

In addition to a full application, the mandatory authorisation scheme entails a formal pre-screening option. It gives an investor the opportunity to obtain a decision from the DBA on whether the investment relates to critical technology or critical infrastructure, which are two of the five particularly sensitive sectors and activities. There is no formal time limit for a the making of a pre-screening decision. The DBA is not required to make a decision on the matter comprised the application for the pre-screening decision.

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

In order to assess the case at hand, the DBA requires information about the target company, the direct foreign investor and the ultimate foreign investor.

Cases processed under the FDI rules are exempt from the Danish rules on public access to documents of authorities. This means that Danish authorities cannot grant access to case documents to any third party in a case processed under the FDI rules. The exemption from public access applies to all documents in the case, including an application for an FDI authorisation, an FDI authorisation and any agreed terms for such authorisation.

An FDI application is submitted and processed in confidentiality by the Danish authorities. The decision on whether to grant or not grant a FDI authorisation will not be published. The Minister and the employees of the authorities who process the application and make the decision are subject to confidentiality obligations.

An investor may apply for and will generally be granted access to case documents in the investor's own case. However, the DBA and the Minister may decide that the investor shall not be granted access to case documents in the investor's own case if this is necessary for reasons of national security or public order.

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

Provided that the DBA finds that the transaction does not constitute a threat to national security or public order in Denmark, the DBA grants an authorisation of the investment. If the transaction constitutes an actual or potential threat to national security and public order in Denmark, the foreign investor may undertake certain commitments to mitigate the threat. The DBA may grant an authorisation subject to the commitments undertaken by the investor.

If the transaction poses a threat to national security and public order in Denmark, the DBA may forward the transaction to be handled by the Minister. The Minister may grant an authorisation, including an authorisation on further agreed terms with the investor. The Minister may also grant an authorisation subject to terms set forth by the Minister. Provided that the transaction constitutes a threat to national security or public order, the Minister may block the transaction.

Under the voluntary notification scheme, the Minister may order a transaction to be rolled back if the investment constitutes a threat to national security or public order in Denmark.

Effects of non-compliance with the FDI rules

If an investment has been made without the necessary authorisation, the DBA may order the non-compliance to be brought to an end, that is to say that the investor must apply for an authorisation within a specified period. In addition, the DBA may order the termination and winding up (liquidation or dissolution) of the investment or the agreement.

If an investor does not comply with an order to terminate and wind up an investment or agreement, the DBA may revoke any voting rights which the investor may have in the Danish company or entity. An agreement which is comprised by an order to terminate the agreement is without legal effect (invalid) between the parties. In addition, the DBA may inform the authorities of the other EU Member States that the investor has not complied with the Danish FDI rules.

The DBA may investigate whether an investment or agreement has been completed without the necessary prior authorisation. The DBA may publish information that it has commenced such an investigation.

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

Transactions may be subject to the Danish merger control under the Danish Competition Act if the thresholds are met. The applicability of the FDI rules to the transaction does not have any relation to the merger control requirements.

The Minister may block the transaction provided that the transaction constitutes a threat to the national security or public order, and that it has not been possible to mitigate the threat by either agreeing on specific terms with the foreign investor or ordering the foreign investor to comply with certain terms.

16. Judicial Review

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

Certain decisions made by the DBA and the Minister under the FDI rules may be brought before the Copenhagen City Court. Due to the confidentiality and sensitivity of the cases at hand, the FDI rules set forth certain procedures for the court proceedings.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

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

N/A

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

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

The EU FDI Regulation introduces minimum requirements for countries that choose to adopt an FDI mechanism. If an EU Member State chooses to adopt an act specifically addressing foreign investments, the act must meet the minimum requirements set out in the EU FDI Regulation. The Danish Investment Screening Act has been adopted and entered into force on 1 July 2021. The Act meets the minimum requirements set out in the EU FDI Regulation. Existing national legislation is generally in compliance with EU legislation.

21. Other relevant information

N/A

Contacts: Per Vestergaard and Josefine Høy Bendtsen

Last updated June 2023

1. Country: Finland

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

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

Sweden (22.8%)
United States (USA) (18.2%)
Germany (10%)
Norway (6.6%)
Luxembourg (6.5%)

Top five total 64.0%

*According to data from Statistics Finland from 2021.

3. Legal Framework in Force

The Act on the Monitoring of Foreign Corporate Acquisitions in Finland (172/2012, as amended) (the Act). The Act on Transfers of Real Estate Requiring Special Permission (470/2019, as amended), which entered into force on 1 January 2020, is also relevant but will not be addressed below, except as expressly mentioned.

4. Last revision of the Legal Framework

11 October 2020 (682/2020)

The Act on Transfers of Real Estate Requiring Special Permission: 1 January 2023 (1098/2022)

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

The Act repealed the previous act on monitoring of foreign corporate acquisitions in Finland (1612/1992), which entered into force on 1 January 1993. The 1992 act repealed three acts: 1) the act on the right of foreigners and certain entities to own and manage immovable property and shares (219/39, as amended); 2) the act on intermediary relations concerning shares (224/39, as amended); and 3) the act on the right of foreigners and certain entities to become a partner in a partnership (322/73, as amended).

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

The authorities exercise control over the ownership of companies considered essential for the security of supply and national security and, if necessary, restrict foreign ownership in such companies by rejection of confirmation, which is needed for certain corporate acquisitions defined in the Act. It is also possible that conditions will be set in the confirmation of a corporate acquisition, if they are necessary to safeguard a key national interest. Depending on the grounds that an object of corporate acquisition is subject to screening, a foreign owner may mean any owner outside Finland or a foreign owner outside EU and EFTA. The Act does not cover green field investments.

In practice, key national interests mainly refer to military national defence, functions vital to society (including safeguarding critical infrastructure and security of supply), national security, and public order.

The procedure concerning the monitoring and confirmation of corporate acquisitions is led by the Finnish Ministry of Economic Affairs and Employment, which also requests opinions from other authorities to the extent necessary. The monitoring of corporate acquisitions is supported by a network of authorities, led by the Ministry, which screens foreign acquisitions and participates in the verification processes related to them. As of 11 October 2020, other EU Member States and the Commission must as a rule also be notified of cases in the process of confirmation under the Act. The Ministry must approve the corporate acquisition, unless it could endanger a key national interest. In that case, the Ministry must refer the matter for consideration to the government plenary session.

The Act on Transfers of Real Estate Requiring Special Permission applies to transfers of real estate in the territory of Finland, if the transferee is:

1) an entity with a seat in a state other than a EU Member State or a member country of the EEA [or a citizen of a state other than a EU Member State or a member country of the EEA;

2) an entity with a seat in a EU Member State or a member country of the EEA when such natural person or entity holds a minimum of one tenth of the aggregate number of votes carried by theshares of a limited liability company or exercises equivalent actual control in the company. The referred natural person or entity may only acquire a piece of real estate in the territory of Finland subject to special permission issued by the Finnish Ministry of Defence.

7. Scope - screening thresholds

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

Under the Act, corporate acquisition refers to activities as a result of which a foreign owner gains control of:

at least 1/10;
at least 1/3; or
at least 1/2 of the aggregate number of votes conferred by all shares in the company, or a holding that otherwise corresponds to decision-making authority in a limited liability company or other monitored entity.

The Act includes more detailed provisions related to taking into account of shares owned / to be owned by the companies in the same group of companies or by a family member or of shares that contractually entitle the foreign owner to use voting rights.

For a specific reason, the Ministry of Economic Affairs and Employment or the Government may also require the buyer to file an application or a notification concerning a measure that will increase the buyer’s influence after the consideration of the initial acquisition that will not result in exceeding these limits.

A corporate acquisition means an acquisition and any other similar measure (which may refer e.g. to a share issue), as a result of which a foreign owner acquires control of votes in a monitored entity as determined in the Act. The Act covers purchase of shares (incl. shares in a listed company) and business of a legal entity.

8. Scope - sectors covered

The so-called defence materiel industry enterprise, which is one of the three main definitions of a monitored entity in the Act, means an organisation or business undertaking that:

a) produces or supplies defence materiel referred to in the Act on the Export of Defence Materiel (282/2012) or other products or services important for military national defence; or

b) whose export of products produced in Finland that are considered as dual-use items referred to in Council Regulation (EC) No 428/2009 (‘EC Regulation’) setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items, or in the Act on the Control of Exports of Dual-Use Goods (562/1996), is subject to authorisation under the EC Regulation or the said Act, or whose export of technology referred to in the EC Regulation or the said Act and used in its operations in Finland is subject to authorisation under the EC Regulation or the said Act.

This means supply of products or provision of services either to the Ministry of Defense, the Defense Forces or the Border Guard. The importance of the products or services is practically assessed on a case-by-case basis, for example based on existing commitments towards the Defense Forces; key software applications, cyber applications, cloud services or the delivery of other similar products and services may be considered as such products and services. In terms of the country's security, relevant activities may include maintenance or support of some critical infrastructure or, production of some key equipment for the Defense Forces. Other examples of the key products or services include encryption products, protective materials, protection against the threat caused by chemical and biological substances, radiation or explosives, i.e. the so-called CBRNE products and space technology products. In addition, products and services which ensure infrastructure related to military defence, such as fuel supply of the Defense Forces can be such important products or services. Further, a private company operating in the civil sector is considered a defense materiel industry enterprise if it exports products which require a license of dual-use product to third countries, transfers sensitive products within the EU or is otherwise granted an export license related to its export of dual-use products or a notification or a decision by authority. Further, a company operating in the civil sector that uses, develops or otherwise deals with monitored dual-use technology, for example know-how or other technical knowledge, in its operations such as in production or in product development, is considered a defence materiel industry company is considered.

Secondly, a monitored entity is also a company that produces or supplies critical products or services related to the statutory duties of Finnish authorities essential to the security of society. These authorities include but are not limited to the Defense Forces, the Border Guard, the police, the customs control, National Emergency Supply Agency, the Finnish National Security Authority (NSA) and the Finnish Transport and Communications Agency (Traficom). Examples of such products or services that can be considered critical are software applications (including encryption software), cyber security applications, certificate services, cloud services, data center services and other products and services that are related to their maintenance. In addition, for example, personal protective equipment produced or supplied to these authorities may be a critical product or service.

Thirdly, an organisation or business undertaking that is considered, when assessed as a whole, critical in terms of securing functions vital to society on the basis of their field, business or commitments is considered a monitored entity in the Act. Criticality to the vital functions of society may vary according to the prevailing security policy. Ensuring security of supply is considered critical. The Act does not specify private and public sectors or activities of the companies, which are included in the scope of the Act. Further, operations in terms of security of supply or other vital functions in an important field of business does not necessarily mean that the company is a monitored entity. For example, there are numerous companies operative in food supply or logistics sectors that are not of critical importance in terms of security of supply. Based on instructions of the Ministry, information on the scope of the Act can be obtained from the guidance documents issued by the Government regarding security of supply and national security.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

In accordance with section 4 of the Act, acquisitions in the defence and dual-use products sector (= defence materiel industry) and in the security sector always require prior confirmation by the authority (i.e. an application). In the non-military sector, Finnish companies considered critical for securing vital functions of society are being monitored. Regards these other corporate acquisitions that fall under the scope of application of the Act, namely under section 5 of the Act, the foreign owner may (but is not obliged to) submit the acquisition for advanced approval to the Ministry of Economic Affairs and Employment (i.e. a notification) before the implementation of the acquisition, which in practice usually means after signing but before closing. The Ministry may also, in cases that fall under the scope of the Act, require that the matter be submitted to the Ministry for examination in the formal confirmation process.

As regards the defence materiel industry, monitoring covers all foreign owners. In other sectors, monitoring only applies to foreign owners residing or domiciled outside the EU or EFTA.

Pursuant to the Act on Transfers of Real Estate Requiring Special Permission, the transferee must apply to the Ministry of Defence for permission for the transfer of a given piece of real estate before the transfer or within two months of the confirmation of the transfer or the date of entry of the transaction in the electronic trading system referred to in chapter 9a of the Code of Real Estate (540/1995, as amended). If the transferee fails to file an application for permission for the transfer within the specified period of time, the Ministry of Defence must notify the transferor of the obligation to apply for permission and impose a time limit for the application of a maximum of two months. Additionally, the Ministry of Defence may require an application for permission, if it is evident that the piece of real estate has been acquired for the account of the persons referred to in the act in order to avoid the duty to apply for permission.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

The application must be submitted by the foreign owner (buyer), not the legal entity being acquired.

In case of a corporate acquisition, other than an acquisition of an entity in the defence or security sector (as defined in the Act), the Ministry of Economic Affairs and Employment must undertake further investigations within 6 weeks and make a decision on the possible transfer of the matter to the government plenary session within 3 months. These deadlines will begin to run from the date on which the Ministry considers that all the necessary information for handling the case has been received from the applicant.

In case of a corporate acquisition of an entity in the defense or security sector, there are no defined timelines in the Act. However, the applications/notifications will always be handled as urgent by the Ministry of Economic Affairs and Employment.

The procedure will always include a request for statements by the Ministry from the relevant national authorities. This phase usually takes approximately three weeks.

As a national contact point under the EU Regulation, the Ministry will generally notify the Commission and the other EU Member States of any ongoing FDI screening. After being notified of the FDI, other EU Member States and the Commission have 15 calendar days to notify the Member State conducting the screening of their intent to provide comments or an opinion, and to request additional information. Other Member States may provide comments to the Member State conducting the screening, if they consider that the FDI is likely to affect their security or public order, or if they have information relevant to the screening. The Commission may issue an opinion addressed to the Member State conducting the screening, if it considers that the FDI is likely to affect security or public order in more than one Member State, or if it has relevant information in relation to that FDI. Comments and opinions are to be addressed and sent to the Member State conducting the screening no later than 35 calendar days following the receipt of the information conveyed with the notification of the FDI. If additional information is requested, such comments or opinions are to be issued no later than 20 calendar days following receipt of the additional information or the notification that such additional information cannot be obtained. Moreover, the Commission – irrespective of having notified its intention to issue an opinion – may issue an opinion following comments from other Member States where possible within the aforementioned deadline(s), but not later than five calendar days after those deadlines have expired. The Member State conducting the screening needs to give due consideration to the comments of the other Member States and to the opinion of the Commission.

In practice, the entire procedure generally takes a couple of months. The parties to an acquisition should take this into account when planning the overall timeline of an acquisition.

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

In Finland, a general principle of transparency in the administration applies. This includes a general right of access to documents in public files under the Act on the Openness of Government Activities (621/1999, as amended). The Act includes certain exemptions, including but not limited to, in relation to trade secrets and information relevant to national security and military defence. If an exemption applies, entire documents or relevant parts thereof will be kept confidential and will not be disclosed to any third parties.

As a rule, the Ministry processes applications/notifications and their appendices as confidential. The Ministry will not provide any information on the corporate acquisition to any third parties during the procedure or prior to the acquisition being finalised.

The application/notification is free-form but it must include key information on the corporate acquisition, the entity subject to screening, and the foreign owner (including the price/value of the FDI information on its funding and possible financier, as well as information of the ultimate owner of the foreign owner and related shareholding/contractual arrangements in order the Ministry to be able to assesses the actual influence after the transaction).

Further, the Ministry has drawn up instructions for preparing the application/notification and these are set out in a document on the website of the Ministry. In addition, the application and notification must also be accompanied by a form containing the information required by the EU Regulation, also available on the website.

At the request of the Ministry of Economic Affairs and Employment, the foreign owner is obliged to provide the Ministry with all information regarding the entity subject to screening, the foreign owner and the corporate acquisition for examining the matter.

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

In most of the cases acquisitions referred to in the applications and notifications are confirmed.

Not confirming an acquisition has so far been rare or none, and such a decision can only be made by the government plenary session.

The Ministry may also set conditions, which are seen as necessary mitigating measures with which, in exceptional situations, a security-critical part can be excluded from the foreign acquisition, instead of rejection of the confirmation by the government plenary session. Such conditions can only be set if the parties to the acquisition undertake to comply with them and the conditions would be agreed in negotiations between the contracting parties and the competent authorities. The type of conditions can vary depending on the case. For example, a carve-out of a certain function or part of the acquisition, or an obligation to continue providing services in accordance with existing production and supply contracts.

The Ministry may also leave the application or notification unexamined, if it considers that the acquisition does not fall within the scope of the Act.

The Act does not provide any deadlines within which the Ministry can intervene in an acquisition of a defence materiel company or a company in the security sector, if the application has not been submitted to the Ministry.

If a confirmation of a corporate acquisition, which would transfer influence in an entity subject to screening, is denied after the acquisition is executed, the foreign owner must dispose of its shares in the corporation. The owner must dispose of its shares within the time specified by the decision, and to a degree that diminishes the number of votes to which the shares entitle the owner to less than one tenth, or some other share approved in a previous confirmation decision, of the aggregate number of votes of all shares in the company. After denial of confirmation, the foreign owner may only use shares that, at a maximum, entitle the holder to the aforementioned number of votes when voting at the general meeting, with no account taken of the foreign owner’s other shares whenever the consent or backing of shareholders holding a certain share of company shares is required in order to reach a valid decision. The same applies to the shares of a foreign owner in a cooperative and the number of votes at general meetings of cooperatives. Upon denial of confirmation of a corporate acquisition, where said confirmation concerns the transfer of actual influence to a foreign owner in an enterprise other than a limited liability company, or concerns a business acquisition, agreements on the acquisition of influence or of a business undertaking will be dissolved at the time specified in the decision. Should anyone who has been denied confirmation cease to be a foreign owner before the expiry of the time period, the aforementioned consequences will expire correspondingly.

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

N/A

The Ministry shall confirm a corporate acquisition under the Act, unless it could endanger a key national interest. The Ministry may confirm the acquisition, and the government plenary session may deny the confirmation of a corporate acquisition based on its own discretion. In addition, if the applicant does not approve the proposed terms of a conditional confirmation, this will result in a denial to grant confirmation to the acquisition.

Under the Act on Transfers of Real Estate Requiring Special Permission, a permission for the transfer of a piece of real estate cannot be granted, if the transfer is deemed a threat national security, complicate the organisation of defence, the surveillance and safeguarding of territorial integrity or the assurance of border control, border security or of the security of supply. The application can also be rejected if the acquisition of real estate could jeopardize the benefits referred to above and the real estate under application is not fit for the intended use stated in the application, or a transferee is a person who is subject to a legally binding deportation decision pursuant to Section 149 of the Aliens Act (301/2004, as amended) and who is staying in the country illegally. In addition, the application can be rejected, if the transferee, on the reminder of the Ministry of Defence, repeatedly neglects the necessary clarification, or intentionally gives incorrect essential information relevant to the matter.

16. Judicial Review

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

The decision by the Ministry may be appealed to the Helsinki Administrative Court (though usually there is no need/interest to appeal, as the decision may only concern confirmation of acquisition or confirmation with conditions approved by the applicant). A rejection decision by the government plenary session may be appealed to the Supreme Administrative Court within 30 days calculated from the day when the decision was received.

17. Publication in Official Gazette or other

The final decisions are available to the public (they can be requested from the Ministry) to the extent they do not include confidential information, but currently the decisions are not published in the official gazette or on the website of the Ministry.

18. Relevant Examples of application

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

Based on publicly available information (included in the Government Proposal (103/2020)), the Ministry has issued a total of 65 confirmations by 8 June 2020 and no confirmation had been denied (therefore no decisions had been appealed to the administrative court).

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

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

On 19 March 2019, the EU adopted a new regulation for the screening of FDI in EU (Regulation 2019/452/EU). The regulation establishes a regulatory framework for Member States’ FDI screening in the EU for reasons of security or law and order. The regulation does not seek to harmonize national FDI screening rules but introduces minimum requirements for countries which have or are willing to adopt an FDI mechanism and has introduced a mechanism for the exchange of information between the Member States and the Commission (see above the question on Design – Procedures and Deadlines). The regulation entered into force on 11 October 2020. The Act was amended as of 11 October 2022 to implement the EU Regulation.

21. Other relevant information

Under the Act, anyone who intentionally or through gross negligence fails to apply for confirmation under section 4 of the Act, neglects the obligation to disclose information, or submits false information to an authority or withholds information deemed significant in terms of considering the matter, shall, unless the act or omission in question is considered minor or a more severe punishment for the act or omission is provided elsewhere by law, be subject to a fine for a corporate acquisition violation.

Contacts: Tuija Kaijalainen, Salla Tuominen and Mika Oinonen

Last updated June 2023

1. Country: France

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

In 2021, the five biggest FDI countries of origin were:

Germany (18%)
US (15%)
UK (9%)
Belgium (7%)
Netherlands (6%)

Source: Business France – Annual Report 2021

3. Legal Framework in Force

3 Legal framework in force Articles L. 151-3 to L. 151-7 and R. 151-1 to R. 151-17 of the French Monetary and Financial Code (MFC)

4. Last revision of the Legal Framework

8 September 2022: following a public consultation in March 2022, guidelines were adopted to provide an educational overview of the scope of the foreign investment control rules.

10 September 2021: Ministry order concerning foreign investments in France now includes technologies involved in the production of renewable energy in the list of critical technologies.

29 April 2020: in the context of the COVID-19 pandemic, the French Minister of Economy has announced two key measures regarding FDI rules, (i) a new Ministry Order entered into force on 27 April 2020 which extended the list of sensitive sector permanently, and (ii) temporary lowering of applicable threshold for non-EU investors to 10%, initially expected to be implemented only until 31 December 2020 but finally extended until 31 December 2023.

31 December 2019: Ministry Order on foreign investments specifies the list of information and documentation required for a FDI filing and provides details the list of the critical technologies.

31 December 2019: Decree n°2019-1590 extends control to new sectors, provides new definitions of foreign investments and investors (with notably new thresholds), and modifies the authorization procedure.

22 May 2019: law n°2019-486 (PACTE law) extends the powers of sanctions of the Minister for Economy and provides for an annual report to the Parliament on government action regarding FDI.

29 November 2018: Decree n°2018-1057 extends the control of foreign investments to new sectors and authorizes the target company to submit a request for prior ruling to the Minister of Economy.

10 May 2017: Decree n° 2017-932 removes the obligation to file an administrative declaration for investments which do not fall within the scope of the prior authorization procedure.

14 May 2014: Decree n° 2014-479 (Montebourg Decree) extends the list of foreign investments requiring prior authorization in strategic sectors.

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

Originally, a French law of 1966 on foreign exchange provided for a general principle of freedom regarding the financial relations between France and other states, subject to the safeguarding of national interests. This regime was replaced by Law No. 2004-1343, adopted on December 9, 2004, which empowered the French government to police foreign investments. A major evolution on the regulatory framework was the adoption of Decree No. 2014-479 by the former French Minister for the Economy, Arnaud Montebourg, on 14 May 2014, by which the scope of the French prior authorization regime was substantially extended in the context of the contemplated acquisition by General Electric of the energy business of Alstom, a flagship of the French industry. The reform of the French regulation in November 2018 further amends and expands the scope of the control to digital technologies, notably artificial intelligence, digital data storage, nanotechnologies, cybersecurity, computer data capture and space operations. Then, the adoption of the so-called PACTE law by the French Parliament in May 2019 strengthened the French government’s investigative powers and choices of sanctions in case of non-compliance with foreign investment regulation. Finally, the last piece of the French FDI regulation reform, notably implementing the legislative changes introduced by the PACTE law, has been adopted in December 2019 with a Decree and an Order. The Decree amends and expands the scope of FDI control to new sectors including food safety, press, and research and development activities relating to energy storage and quantum technology, but also reforms the authorization procedure and the concept of foreign investment and investor, notably by removing the distinction between EU and non-EU investors, introducing the concept of chain of control, lowering the threshold to 25% and reducing the response time of the Ministry to thirty days. The latest reform results in the addition of the technologies involved in the production of renewable energy to sensitive. The exceptional features adopted by the French government in the context of the COVID-19 pandemic, including the extension of sensitive activities to “research and development activities relating to biotechnologies”, and temporary lowering the applicable threshold to 10%, extended until December 2023.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

As of April 1, 2020, the following individuals and entities are each deemed a foreign investor under the new French FDI regulation:

(i) any individual of foreign nationality;
(ii) any French individual who is not a French tax resident;
(iii) any foreign law entity; and
(iv) any French entity controlled by one or more individuals or entities mentioned in (i), (ii), (iii).

7. Scope - screening thresholds

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

Foreign investors are required to seek prior authorization for any of the following:

direct or indirect acquisition of a controlling stake in a French company (share deal);
the acquisition of all or part of a line of business of a French company (asset deal); or
the acquisition of more than 25% of the stock or voting rights of a French company (threshold test).

Please note that this last threshold should be lowered to 10% in the case of an acquisition of voting rights in a French listed company, for non-EU/EEA investor, until 31 December 2023 due to current economic context.

8. Scope - sectors covered

The sensitive sectors requiring approval are listed under article R. 151-3 of the MFC and article 6 of the December 31, 2019 order, and are as follows:

Activities relating to security and defence sectors in the broadest meaning

research, development and sales of weapons, munitions, powder or explosive substances to be used for military ends or war;
certain dual-use items and technology;
companies privy to classified information;
goods or services related to the security of the information systems of public or private sector companies managing critical infrastructures;
the supply of research or equipment to the Ministry of Defence;
cryptology systems;
the interception of communications and computer data equipment;
audit and certification of information technology systems and products;
the gambling industry, except for casinos;
research and development or manufacture of means of fighting the illegal use of pathogens or toxic substances or to prevent the sanitary consequences of such use;
data processing, transmission, storage;

Activities relating to the supply, security and continuity of:

water, electricity or other energy sources, transport services and networks, space operations, electronical telecommunications, vitally important establishments, protection of public health and missions of the national police, gendarmerie, civil security and public safety;
production, processing or distribution of agricultural products, and the editing, printing or distribution of political and general information press publications;

R&D activities relating to:

cybersecurity, artificial intelligence, robotics, additive manufacturing, semi-conductors, quantum technologies, energy storage, renewable energy (i.e. the critical technologies as defined in the Order of December 31, 2019) and certain dual-use items and technologies; and
biotechnologies.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

Pursuant to article L. 151-3 of the MFC, any foreign investment made in France in sectors that are essentials to guarantee French national interests in terms of public policy, public security or national defence are subject to a prior authorization by the MINEFI. This prior authorization is mandatory for every investment falling within the scope of the regulation. A wide range of sanctions may be imposed by the MINEFI for failure to respect the authorization regime.

The investor also has the option of filing a screening request for an activity (Article R. 151-4 of the Monetary and Financial code).

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

As of 1 April 2020, the French FDI review process has been modified with the introduction of a new “two step process”. According to this new process, the Ministry has:

Phase 1: 30 working days from the date of receipt to indicate whether the transaction (i) falls outside the scope of the review, (ii) is cleared unconditionally or (iii) requires further analysis. If no response is received by the applicant within this time frame, the request is deemed rejected;
Phase 2: where further analysis is required, the Ministry have an additional period of 45 working days to provide the investor with its final decision, i.e. either (i) the refusal of the investment or (ii) the clearance with commitments. If no response is received by the applicant within this time frame, the request is deemed rejected. In the event that the Minister for the Economy denies the authorization, he must provide the investor with the reasons for such denial.

It should be noted that it is the investor which is responsible for obtaining the clearance in due time.

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

In essence, the prior authorization request must include:

Information regarding the investor: presentation of the direct investor (certificate of incorporation etc.), description of the chain of control if applicable (including ultimate investor), its activities with information related to markets, market shares, competitors etc., and mention of any capital/financial links with a State or public entity other than the European Union over the last 5 years;
Information regarding the target: presentation of the sellers, the target company, description of the target’s activities, customers, markets and market shares, competitors and its involvement in programmes of Union interest or any financial support with European Union funds;
Information regarding the investment: copy of any document attesting that the investment project is “sufficiently advanced”; possible option on the capital balance; amount of the investment in France and for the global transaction, rationale for the transaction in connection with the investor's global strategy and the financial terms of the transaction.

Prior authorization requests must be sent in one original copy to the MINEFI at the following address: Direction générale du Trésor, 139, rue de Bercy, 75572 Paris Cedex 12 and in one electronic version at the following address: IEFautorisations@dgtresor.gouv.fr.

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

In practice, the Minister’s decisional power is not limited to granting or denying authorization of an investment but the Minister may also make the authorization subject to a number of commitments by the investors if it is likely to jeopardize national interests. Such conditions typically concern the continuity of the company’s business and the sustainability of its activities, the safety of its supply chain, its industrial capabilities etc.

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

N/A

The substantive test for clearance is to verify that a contemplated transaction or investment may not harm national interests and that there is no risk under business ethical rules. Nonetheless, as for the scope of the regulation, given the fact that French law does not define the concept of national interest, the Minister for the Economy has a rather high degree of discretion concerning the decision whether to grant the authorization to invest.

However, the series of factors listed by the EU Regulation n°2019/452 to be taken into account in determining whether a foreign investment is likely to affect security or public order should normally also apply in the French context.

16. Judicial Review

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

MINEFI decisions are subject to full review (recours de plein contentieux) by administrative law courts. Under this procedure, French administrative law judges are given broad powers to substitute their appreciation for those of MINEFI and to overrule MINEFI authorizations or rejections.

Additionally, an investor can challenge a MINEFI decision under European Community law in French courts if it can demonstrate that the French regulatory framework restricts the free movement of capital and is not narrowly tailored to the protection of the public interest at issue.

17. Publication in Official Gazette or other

No. However, since PACTE law, aggregated statistics on the number of applications received, the origin of investors and the sectors concerned are published annually on the website of the DGT.

18. Relevant Examples of application

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

There is no publicly available source of information regarding MINEFI’s approval or rejection of foreign investments. Therefore, the only examples of FDI decisions are cases with significant political impact and related press coverage. In two of these publicly known sensitive cases concerning foreign investments, i.e. the acquisition by General Electric of the energy business of Alstom in 2014 and the takeover of Alcatel lucent by Nokia in 2015, the clearance was finally granted by the authorities subject, in the case of Alstom, to a certain number of commitments. However, the MINEFI seemed to have harden its position recently with the veto opposed by the Ministry to the acquisition of Carrefour by the Canadian Group “Couche-Tard” in January 2021.

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

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

The existing French foreign legislation has been amended to take into account Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 (OJ L 791, 21.3.2019, p. 1-4) which entered into force on 11 October 2020.

21. Other relevant information

N/A

Contacts: Edouard Sarrazin and Clara Deveau

Last updated June 2023

1. Country: Germany

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

Based on the information of the Federal Ministry for Economic Affairs and Climate Action, in 2021, out of 306 total screening cases the biggest FDI countries were:

USA (139 screening cases);
UK with Channel Islands (45 screening cases);
China (37 screening cases);
EU/EFTA (22 screening cases);
Canada (13 screening cases).

3. Legal Framework in Force

AWG (Foreign Trade and Payment Act), specifically sections 1,4,5,14a, 15, 18; AWV (Foreign Trade and Payment Ordinance), specifically sections 55-62.

4. Last revision of the Legal Framework

28 December 2022.

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

The German regulation is generally based on the fundamental principle of free trade, allowing all economic transactions with foreign firms or countries as long as they are not explicitly forbidden or otherwise regulated. The latest larger revisions in 2020 and 2021 broadly extended and specified the scope of application with regards to the area of the critical infrastructure and critical industries (extended to certain state communication measures, pharma, medical devices, personal protective equipment) as well as the military/state secrets area examinations of corporate acquisitions. Asset deals, while concluded to be within the scope in the past, have explicitly been included in the scope. While intra-group transactions generally are within the scope of the FDI regime, such transactions fall out of the scope if the purchaser and seller are fully owned by an identical owner and both have their management within the same jurisdiction. The scrutiny threshold for taking up a transaction has been lowered considerably from “danger to security and order” to the “potential impairment of security and order,” but not only of Germany but also of the other Member States with regard to important EU projects, thus reflecting the EU FDI Regulation. A major change to the framework is that transactions in the area of critical infrastructures and industries are now conditional on clearing by the competent Federal Ministry for Economic Affairs and Climate Protection (BMWK). Certain acts of closing (transferring voting rights and critical information – the latter even in due diligence) can now be prosecuted as criminal acts if transactions in the critical areas have not been cleared by BMWK (which is in charge of FDI examination) in advance. In addition, the amended rules now explicitly refer to critical investors with a special attention to investors that are controlled by the state or public entities. Thus, the assessment by BMWK whether a potential impairment of security and order may be in place can also be based on the actual purchaser, especially if the latter is state controlled or has acted illegally in the past.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

FDI in Germany occurs in three different sectors:

Sector A: Military/classified state information sector (see point 7 below);
Sector B1: Critical infrastructure sector (see point 7 below);
Sector B2: Critical industries sector (see point 7 below); and
Sector C: Other potentially critical entities (see point 7 below).

The framework does not establish a standard procedure for the authorities to actively screen the market for relevant FDIs although screenings, which will not capture all cases, occur.

If BMWK comes across relevant information (e.g. in the media), it has the competence to start aprocedure. Notification to BMWK by the immediate purchaser is required:

in Sector A in case of the direct or indirect acquisition of a minimum of 10% of the voting rights in a German entity by a non-German entity;
in Sector B1 in case of the direct or indirect acquisition of a minimum of 10% of the voting rights in a German entity by a non-EU entity;
in Sector B2 in case of the direct or indirect acquisition of a minimum of 20% of the voting rights in a German entity by a non-EU entity; but
no notification is required in Sector C. However, notification is recommendable in critical cases.

While non-compliance with notification requirements itself in Sectors A and B does not lead to any immediate penalties, transferring voting rights, providing dividends and certain critical information without prior clearing by BMWK are pending void and even criminal acts.

BMWK may order investigations of transactions even years after closing. Since closing is under the conditions subsequent of clearing by BMWK, BMWK generally has the power to invalidate any actions taken by the target/ shareholder after a closing that is later ordered to be ineffective by BMWK. Of course, BMWK as an alternative may order a reverse transaction or certain conditions (e.g. reporting obligations, sale of certain business parts).

Please note that the German regulation aims to close loopholes by extending rules to cases where domestic or intra-EU corporations seem to act as scarecrow acquirers or to asset deals that lead to situations of purchase of voting rights/shares. Even if the immediate purchaser is a German entity, review shall occur with regard to all direct and indirect owners of this German entity.

The same applies to asset deals, where definable parts of the business of a domestic company or all of the equipment of a domestic company or of a definable part of the business of a domestic company that is necessary to maintain the business is aquired.

7. Scope - screening thresholds

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

For each of the sectors, different thresholds apply. Please see below.

Calculation of voting rights is identical for all sectors. Please note that for calculation not only the actual voting rights are taken into consideration but also the assurance of additional seats or majorities on supervisory bodies or in management, the granting of veto rights in strategic business or personnel decisions, or the granting of rights concerning critical information. The same applies in the case of voting rights agreements. If purchasing/holding companies together cross any thresholds and both are indirectly or directly controlled by the same state or public bodies of the same state, the individual percentage of voting rights is added to each other’s voting rights.

Please also note that calculation of voting rights is not proportional in the case of indirect acquisitions.

Thus, if a shareholder holds 10% in a company that acquires 10% of a German entity in Sector A or Sector B1, this is considered not as an acquisition of 1% of the voting rights but of 10% of the voting rights in the target by the shareholder.

Sector A:

Direct or indirect acquisition of 10% or more of the voting rights of entities that:

currently develop, manufacture, modify or have effective control over any goods listed in the German export list (military goods) or have done so in the past and still have knowledge or other access to the technologies;
develop, manufacture, modify or have actual control over goods in the field of defence technology which are covered by classified patents or have done so in the past and still have knowledge or other access to the technologies;
currently manufacture or have manufactured in the past products with IT security functions to process classified state information or components essential to the IT security function of such products if the overall product was licensed with the knowledge of the company by the Federal IT Security Agency;
are legally defined defence-related facilities.

Please note that the notification requirement also applies to additional investments, even if an earlier investment was cleared by BMWK, if such investment crosses the 20%, the 25%, the 40%, the 50% or the 75% threshold.

Sector B1:

Direct or indirect acquisition of 10% or more of the voting rights of an operator of critical infrastructure or comparable areas (see below) by a non-EU/non-EFTA person/entity. This applies to:

operators of critical infrastructure (with certain thresholds defined by law) in the following sectors:
- Energy sector: power plants, power storage plants, transmission networks, pipelines, etc;
- Water sector: water works, water processing installations, distribution or sewer systems, purification plants, etc;
- Food sector: Food production, treatment, processing, distribution, etc;
- Telecommunications sector: networks, transmission networks, IXP, DNS-Resolvers, DNS-Server, data housing and hosting, content delivery networks, trusted services operations;
- Health sector: hospitals, life-saving medical device production, pharmaceutical manufacturing plant, pharmacy, communications system, lab, etc;
- Finance and insurance sector: authorizing system, clearing systems, etc;
- Transport and traffic sector: airports, train stations, system for operation of water ways, traffic control systems, public transport, etc;
entities specifically developing or specifically modifying software that is industry-specific for the operation of aforementioned critical infrastructures;
entities entrusted with surveillance measures or establishment of technical facilities for the implementation of legally prescribed measures for monitoring telecommunications and knowledge of that technology;
entities offering cloud computing services (certain thresholds apply);
entities holding an authorization for components or services of the telematics infrastructure regarding patients’ cards for the public health insurance system;
media enterprises (broadcasting, telemedia, print) that take part in building public opinion and have special current and broad effect; and
enterprises providing services which are needed to ensure the trouble-free operation and functioning of certain state communication infrastructures.

Sector B2:

Direct or indirect acquisition of 20% or more of the voting rights of an operator of critical industries or comparable areas (see below) by a non-EU/non-EFTA person/entity. This applies to:

entities developing and/or manufacturing personal protective equipment;
entities developing and/or manufacturing and/or marketing essential medicines, including their precursors and active ingredients to ensure the provision of healthcare to the population, or possessing a corresponding license under pharmaceuticals law;
entities developing or manufacturing medical devices products which are intended for diagnosis, prevention, monitoring, predicting, forecasting, treating or alleviating of life-threatening and highly infectious diseases or
entities developing or manufacturing in-vitro-diagnostics which serve to supply information about physiological or pathological processes or conditions or stipulate or monitor therapeutic measures relating to life-threatening and highly infectious diseases;
operators of high-quality remote sensing systems under the Satellite Data Security Act;
air carriers with an operating license;
employers of employees working at security-sensitive posts in vital facilities;
raw materials extractors, processors and refiners;
entities of fundamental importance for food safety and directly or indirectly covering or culturing an agricultural area of more than 10,000 hectares;
developers or manufacturers of:
- goods which are capable of independently optimizing their algorithms by means of artificial intelligence procedures for cyber-attacks, identity fraud, surveillance and repression;
- autonomous motor vehicles or unmanned aerial vehicles and components;
- robots specially designed for handling explosive agents, specially designed or rated as radiation-hardened to withstand, without loss of function, a radiation dose exceeding 5 x 103 Gy (silicon), specially designed to operate at altitudes exceeding 30,000 meters, or specially designed to operate in water depths of 200 meters or greater;
- semiconductors;
- IT products and components for the protection of IT systems, defense against cyber-attacks or IT technology for the investigation of criminal offences and the preservation of evidence by law enforcement authorities;
- certain dual-use goods in the aviation and space industry area;
- dual-use nuclear technology;
- quantum technologies;
- industrial 3D printers;
- goods specifically designed for the operation of wireless or wireline data networks;
- smart-meter gateways and security modules for these goods; and
- goods which are protected by classified patents by law.

Please note that the notification requirement also applies to additional investments, even if an earlier investment was cleared by BMWK, if such investment crosses the 25%, the 40%, the 50% or the 75% threshold.

Sector C:

Sector C is a catch-all sector and covers any acquisition of 25% or more of the voting rights of any German entity by a non-EU purchaser that may endanger national security or public order. While there is no notification requirement, notification may be recommendable if the target may be critical (e.g. mainly active for public entities), as otherwise BMWK may ex officio investigate the transaction for five years from signing. Please note that even if an earlier investment was cleared by BMWK or if the five-year period for an ex officio investigation has passed, in case additional investments cross the 40%, the 50% or the 75% threshold, the ex officio competence applies, again. Thus, a notification may be recommendable in such cases as well.

As mentioned above, asset deals with an effect identical to acquiring the aforementioned entities are also covered by FDI screening. Loopholes are closed by circumvention regulation

8. Scope - sectors covered

Please see question 7, above.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

a) In general, the conclusion of a contract needs to be reported to BMWK without delay.

However, while for Sector C it is generally recommendable to only close after the end of the FDI procedure, for sectors A, B1 and B2, a transfer of voting rights is invalid until clearance by BMWK has occurred. An exemption applies when the shares are acquired on the stocks and securities market. In the latter case, the acquisition of stocks and securities is valid if the purchaser immediately notifies BMWK. The purchaser is still prohibited from executing his voting rights until the acquisition is cleared by BMWK.

b) Depending on the area of a target’s activities:

Sector A: 10 %, 20%, 25%, 40%, 50% 75% of the voting rights;
Sector B1: 10%, 20%, 40%, 50%, 75% of the voting rights;
Sector B2: 20%, 25% 40%, 50%, 75% of the voting rights;
Sector C: 25%, 40%, 50%, 75% of the voting rights.

c) Notification is mandatory in sectors A, B1 and B2 but investigation procedures by BMWK are not.

BMWK may simply review and give clearance or order an in-depth review. A certificate of non-objection may be applied for voluntarily after signing in Sector C. Also, in cases in which the purchaser assumes that no notification requirement exists, a precautionary notification (formal application) or an informal enquiry can be submitted to BMWK via e-mail.

10. Design – reciprocity?

The relevant regulation does not mention reciprocity.

However, reciprocity was discussed in earlier legislative processes and may in reality play a role in the decision. For example, the blocking of the acquisition of Aixtron in 2016 by a Chinese investor has been interpreted as an attempt to negotiate better access for German investors to the Chinese market.

11. Design – Procedures and Deadlines

After notification or after finding out about the transaction, BMWK provides existing information to other stakeholders (other ministries and authorities, member states, Commission) for comments.

Only after receiving the comments, will BMWK decide on ordering an in-depth review. BMWK needs to take this decision within two months of learning about the transaction.

If BMWK does not decide within this two months period, this is under law considered to be a clearance of transaction.

If BMWK decides to order an in-depth review of the acquisition, it orders such review within the aforementioned timeframe. Such order requires the immediate purchaser to submit a defined set of information (including percentage of shares before and after transaction, description of the business objective of purchaser and acquired entity, business strategy of purchaser, annual financial statements and business reports of the past three years, acquisition agreement, etc).

In addition, BMWK raises questions individually designed for each transaction. The investigation needs to be finalized within four months. However, the expiry of the deadline is suspended during periods in which questions have not been answered by the purchaser. Please note that BMWK may issue several rounds of questions.

If during the aforementioned time period BMWK finds expectable impairment to public order and security, it has the competence to:

order invalidity of closing (if closing has occurred);
order a reverse transaction (if closing has occurred);
prohibit the acquisition before closing (also if closing has occurred but was pending void); and
instruct the purchaser and target entity to take mitigating measures (e.g. report obligations, limit the acquiring party’s right to use its voting rights for certain decisions, sell critical assets).

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

BMWK provides an Excel form on its homepage that serves as the basis for a binding data transfer in the FDI screening process. The form provides for several options e.g. the notification of a transaction or the application for a certificate of non-objection. The completed form should be submitted to BMWK via e-mail. It is possible to refer to additional annexes or briefs within the form. In addition, BMWK has issued a decree listing further information required, depending on the specific action. Any additional documents and information should be submitted to BMWK via e-mail together with the Excel form.

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

German law provides for:

blocking, i.e. prohibiting the closing (Untersagung); and
ordering the invalidity of closing as a way of implementing the prohibition;
unwinding as a way of implementing the prohibition: BMWK can appoint an escrow for this purpose, at the acquirer’s cost; and
instructions, in the form of administrative orders, e.g. unbundling of critical business parts from the purchased entity, measures to make sure that technology is not shared, limited voting rights; reporting requirements.

Another means often employed by BMWK is the conclusion of a public law contract between BMWK and the purchaser (and potentially the target) in which BMWK clears the transaction in exchange for the purchaser (and target) agreeing to certain conditions (reporting obligations, sale of business parts, etc.)

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

Not under law.

Blocking, as well as other instructions, may be ordered if an acquisition potentially impairs public order or safety of the Federal Republic of Germany, other EU Member States, or certain defined EU projects. This is not based on WTO definitions. However, BMWK interprets it as defined in the new EU FDI regulation.

BMWK has discretion regarding the application of the criteria.

No court decisions have occurred on the reach of the discretion so far.

16. Judicial Review

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

Judicial review is available within one month from the order of blocking or instructions with the competent administrative court (usually the administrative court of Berlin).

The competent court may review if public order and safety are indeed potentially impaired and whether the order in question is adequate (i.e. appropriate – able to cure the situation; required – the least intrusive way of dealing with the issue in question; and equivalent - not completely out of range).

So far, there has been one (unsuccessful) judicial proceeding for interim measures regarding suspension periods during the FDI review process ordered by BMWK and the legal fiction of the clearance of the transaction if BMWK does not decide within a two month time frame (see question 11 above).

17. Publication in Official Gazette or other

No.

18. Relevant Examples of application

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

From 2016 to 2017, in four cases, stipulations (not restricting the acquisition) were decided by BMWK, and in seven cases, the certificates of non-objection were only issued after public law contracts assuring public order and security were concluded. In 2021, in only 2% of the FDI screening cases (6 out of 306 cases) measures were taken (this includes prohibitions, side conditions, public-law contracts and administrative orders). While the number of cases increased compared to the years before, the cases with measures taken significantly dropped from 12 % in 2018 (10 out of 78 cases), 11 % in 2019 (12 out of 106 cases) and 7.5 % in 2020 (12 out of 160 cases).

Since 2016, the German government vetoed six acquisitions, each time with regards to Chinese investors.

In October 2016, a Chinese investor was banned from acquiring a manufacturer of semiconductors and nano materials (Aixtron) based on an intervention from the US. While 51% of the investment should have come from a private investor, 49% of the investment would have come from an entity indirectly held by the local government of Xiamen, China.
With regards to investment in Leifeld Metal Spinning AG, the investor Yantai Tahai was vetoed because of safety interests, in part because the investor does business in the nuclear area.
Even though not in the scope of the German foreign investment screening, the German government in March and July 2018 made sure that the Chinese state-owned SGCC could not acquire 20% of the shares of German grid operator 50hertz. In March, the purchase was avoided by Belgian Elia’s acquisition, and in July by acquisition of the shares by the government's public bank KfW.
In December 2020, the Federal Government prohibited the acquisition of IMST GmbH, a 5G, satellite and radar expert company by a Chinese buyer.
In September 2022 the Federal Government prohibited the acquisition of Elmos Semiconductors SE, a producer of semiconductors, by a Chinese buyer through a Swedish subsidiary as intermediary.
Another case that drew attention in 2022 was the participation of the company Cosco Shipping, a state owned Chinese company, in the port of Hamburg. Cosco Shipping originally intended to acquire 35% of the shares of the port terminal operator HHLA Container Terminal Tollerort GmbH. The Federal government partially prohibited the acquisition and limited the number of shares that can be acquired to 25%. Each acquisition of additional shares by Cosco Shipping, that exceeds the 25% threshold, will cause another FDI screening. Further, the atypical acquisition of control, i.e. through contractual veto rights by Cosco Shipping, has been prohibited.

In April 2022, according to media reports, the Federal Government set an example for ordering a reverse transaction in the case of the acquisition of Heyer Medical, a producer of medical products i.e. ventilators, by the Chinese company Aemond. In 2020, Aemond had concluded a purchase agreement regarding Heyer Medical after the latter filed for insolvency in 2018.

In April 2022, BMWK stopped the purchase of Gazprom Germany by an investor and held the latter’s decision to liquidate Gazprom Germany invalid. The transaction had not been notified to BMWK. As Gazprom Germany operated critical infrastructure, its sale to a Russian investor required pre-approval by BMWK. Since the sellers were not willing to re-accept the shares in Gazprom Germany the latter has been set under a trusteeship of the Federal Network Agency (Bundesnetzagentur) and has since been nationalized.

Please note that no information is available on transactions that may have been aborted because of concerns of BMWK

19. Stakeholders views on the Legal Framework

The latest amendments have drawn some criticism from industrial organizations, especially the Federation of the German Industry (BDI).

20. Interplay with the future EU Regulation

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

The updated German regulation makes full reference to the EU Regulation. While the existing procedures already conformed with notification and answering periods, the broadened scope explicitly allows other Member States and the Commission to provide their input and to also base actions by BMWK on their interests.

21. Other relevant information

N/A

Contacts: Ludger Giesberts and Thilo Streit

Last updated June 2023

1. Country: Hungary

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

Based on data published by the Hungarian National Bank, during Q4 of 2021 the five biggest sources of FDI into Hungary were:

The Netherlands
Switzerland
South Korea
Ireland
Luxemburg

3. Legal Framework in Force

Regime enacted in 2018 (2018 FDI Regime):

Act on the Control of Foreign Investments Offending the National Security of Hungary (Act LVII of 2018) (2018 FDI Act)
Government Decree 246/2018 (XII.17.) on the Implementation of Act LVII of 2018 on Control of Foreign Investments Offending the National Security of Hungary

Regime enacted in 2020 (2020 FDI Regime):

Act LVIII of 2020 on intermediary measures and pandemic preparedness in connection with the termination of the state of emergency (2020 FDI Act)
Government Decree 289/2020 (VI.17.) on the definition of specific fields of operation of corporations having their headquarter in Hungary
Government Decree 561/2022 (XII. 23.) on special rules applicable during the state of emergency related to the protection from an economic perspective of companies having their headquarter in Hungary

Other notable sources:

Act on the Investments of Foreigners in Hungary (Act XXIV of 1988)
Act on the Acceleration and Simplification of the Implementation of Investments of Strategic Importance from the Perspective of the National Economy (Act LIII of 2006)
Bilateral Investment Treaties concluded by Hungary
Agreements on Strategic Partnership concluded by Hungary
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)
Convention on the Settlement of Investment Disputes between States and Nationals of other States (Washington Convention)

4. Last revision of the Legal Framework

23 December 2022

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

The Act on the Investments of Foreigners in Hungary (Act XXIV of 1988) was introduced shortly before the 1989 collapse of the communist regime in Hungary. Its introductory provisions declare that its aim is “facilitating the direct participation of foreign operating capital in the Hungarian economy”. Hungary has gone through many significant positive developments since the introduction of the Act, such as becoming a Member State of the EU in 2004. Although the Act remained effective to date, about two-third of its early provisions, containing various administrative restrictions on foreign direct investment, have been abolished.

Much like an investment treaty, the current version of the act grants substantive protections to investors such as full protection and security or protection against expropriatory measures (or measures having an equivalent effect). It stipulates that any expropriatory measures may only be taken upon the payment of prompt compensation for the actual value of the assets of the foreign investor. Compensation is granted through the competent administrative agencies of the state in the same currency in which the investment was made. In the event of a violation of the law, a competent domestic court can be made to review the decision of the administrative agency on the issue of compensation.

To facilitate the projects financed by EU subsidies by providing a faster, simpler and more unified procedural framework and to use the available resources more efficiently, the Hungarian Parliament adopted Act LIII of 2006 on the Acceleration and Simplification of the Implementation of Investments of Strategic Importance from the Perspective of the National Economy. The aim of the Act is to promote the forming of a regulatory environment which corresponds to the special needs raised by investments of high importance from the perspective of the national economy, by accelerating authority approval procedures and reducing public administration deadlines. The scope of the Act does not only extend to FDI but also to domestic investments of strategic importance.

As of 1 October 2022, Hungary has signed bilateral investment treaties (BITS) with the following countries: the Republic of Albania; Argentina; Australia; the Republic of Austria; the Republic of Azerbaijan; the Kingdom of Belgium and the Grand Duchy of Luxembourg BLEU (terminated 2022); the Republic of Belarus; Bosnia and Herzegovina; the Republic of Bulgaria (terminated 2020); the Republic of Cabo Verde; the Kingdom of Cambodia; Canada; the Republic of Chile (signed but not yet in force); the People’s Republic of China; the Republic of Croatia (terminated 2020); the Republic of Cuba; the Republic of Cyprus (terminated 2020); the Czech Republic (now Czechia - terminated 2021); the Kingdom of Denmark (terminated 2020); the Arab Republic of Egypt; the Republic of Finland (terminated 2021); the French Republic (terminated 2021); the Federal Republic of Germany (terminated 2021); the Hellenic Republic (terminated 2021); the Republic of India (terminated in 2017); the Republic of Indonesia (terminated in 2016); the Islamic Republic of Iran (2022); the State of Israel (terminated in 2007); the Republic of Italy (terminated in 2008); the Hashemite Kingdom of Jordan; the Republic of Kazakhstan; the Republic of Korea; the Republic of Kosovo (2020); the State of Kuwait; the Kyrgyz Republic (2022); the Republic of Latvia (terminated 2021); the Lebanese Republic; the Republic of Lithuania (terminated 2021); the former Yugoslav Republic of Macedonia; Malaysia; the Republic of Moldova; Mongolia; the Kingdom of Morocco; the Kingdom of the Netherlands (terminated 2021); the Kingdom of Norway; the Republic of Paraguay; the Republic of Poland (terminated 2021); the Portuguese Republic; Romania (terminated 2022); the Russian Federation; the Republic of Serbia; the Republic of Singapore; the Slovak Republic (terminated 2020); the Republic of Slovenia (terminated 2021); the Kingdom of Spain (terminated 2021); the Kingdom of Sweden (terminated 2021); the Swiss Confederation; the Republic of Tajikistan (2022); the Kingdom of Thailand; Tunisia (signed but not yet in force); the Republic of Turkey; Ukraine; the United Kingdom of Great Britain and Northern Ireland (including the territories of Bermuda, Gibraltar, Guernsey, the Isle of Man, Jersey, and the Turks and Caicos Islands) (terminated in 2022); the United Arab Emirates (2021); the Eastern Republic of Uruguay; the Republic of Uzbekistan; the Socialist Republic of Vietnam; and the Republic of Yemen.

Hungary is also party to the Energy Charter Treaty.

In the past decade, the Hungarian government has also facilitated the conclusion of agreements on strategic partnership to strengthen cooperation with foreign investors in Hungary and with their Hungarian subsidiaries. A system of criteria has been set up for the conclusion of such agreements. The aim is that only companies which are likely to contribute to the country’s economic and social development in the long run can be included in the scope of companies concluding such agreements. In turn, strategic agreements ensure that the particular investor will receive an instant and comprehensive insight into the legislative changes affecting its industry.

Hungary acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on March 5, 1962, and its provisions entered into force on June 3, 1962 for Hungary. Hungary also signed the Washington Convention on the Settlement of Investment Disputes between States and Nationals of other States on 1 October 1986, and its provisions entered into force on 6 March 1987 for Hungary.

From a purely FDI regulatory perspective, we note that in addition to the above, to ensure compliance with EU law, the 2018 FDI Regime entered into effect in 2018 that has been amended during the pandemic, in November 2020, so as to cover also investments made by EU/ EEA investors during the state of emergency period in Hungary.

During the course of 2020, with regard to the pandemic, the Hungarian FDI regime was further supplemented with a new leg - the 2020 FDI Regime, which establishes a much wider scope of screening (from the point of view of strategic industries) compared to the 2018 FDI Regime.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

As a Member State of the EU, generally, Hungary has a favorable attitude towards foreign investments. Below are the summaries of the mechanisms under the 2018 FDI Regime, 2020 FDI Regime, and the extraordinary measures taken during the pandemic and in respect of the state of emergency in Hungary.

According to the 2018 FDI Act and the 2020 FDI Act, a pre-screening procedure is based on a notification obligation. The notification is to be completed for the Minister of Interior under the 2018 FDI Regime, and for the Minister of Innovation and Technology under the 2020 FDI Regime) regarding the establishment, change in ownership or majority influence in enterprises related to specifically defined activities that are considered strategic (See questions 7 and 8). The respective notification obligations apply to foreign investors (which have been extended to encompass both extra EU and EEA, as well as EU/ EEA investors under both regimes during the state of emergency in Hungary). It must be assessed on a case-by-case basis whether, according to the wording of the Regimes, the scope extends cover a specific transaction and a specific investor (effective at the time of the contemplated signing of the transaction documents).

A mandatory pre-screening procedure is carried out when a foreign investor seeks to establish an enterprise or acquire ownership or possession of any other right in enterprises important to national security in case the rights are higher than the threshold limits (See section 7).

Foreign investors and investments are required to operate in compliance with prevailing Hungarian laws (e.g. company law, tax law, criminal law) in the same way as Hungarian investors and investments.

7. Scope - screening thresholds

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

The 2018 FDI Regime

The mandatory notification obligation under the 2018 FDI Regime falls on a foreign investor who seeks to establish an enterprise or acquire ownership or possession of any other rights in enterprises important from the perspective of national security:

in case these rights are higher than 25% and the acquisition means that the foreign investor’s ownership collectively would exceed this threshold limit; or
exceeding 10% in the case of a public limited liability company; or
in case of acquiring dominant influence.

The 2020 FDI Regime:

The mandatory notification obligation falls on a foreign investor, who seeks to:

acquire majority influence (within the meaning of the Civil Code) in a strategic company, through the following transactions, if the aggregate value of the transaction reaches or exceeds HUF350 million (EUR1 million) and provided that the foreign investor is a person that is a citizen of/incorporated in a member of the EU/EEA/Switzerland (or if, in any foregoing person a citizen of/incorporated in a member of the EU/EEA/Switzerland has majority influence): acquisition of ownership stake, of bonds, or usufruct;
acquire an ownership stake exceeding 10% (according to the lex specialis rules applicable only until 31 May 2023, 3% in a public company limited by shares, or 5% in other companies) in a strategic company, as a result of the acquisition of ownership, bond or usufruct, if the investor does not have a thoroughly EU/EEA/Swiss background (i.e. it is either incorporated outside of the EU/EEA/Switzerland, or incorporated in the EU/EEA/Switzerland, but is under the majority influence of a person that is a citizen of or incorporated in a country outside of the EU/EEA/Switzerland) and the overall value of the transaction reaches or exceeds HUF350 million (EUR1 million);
acquire an ownership stake of 15% (according to the lex specialis rules applicable only until 31 May 2023, 10%), 20%, 50% in a strategic company, or as a result of the acquisition of an ownership stake/bond/usufruct, the overall stake of foreign stakeholders will exceed 25% in a strategic company, provided that the foreign investor is not an investor of thoroughly EU ownership background;
acquire the ownership or operation right or the right to use strategic infrastructure and equipment in strategic industries, or the encumbering of such infrastructure or equipment, if the investor qualifies as a foreign investor under the 2020 FDI Act (or is an entity in which a foreign investor has majority influence pursuant to the Civil Code).

The notification obligation under the 2020 FDI Regime does not pertain to transactions (i) executed in respect of a mother company incorporated outside of Hungary (even if such transactions result in the above changes in control/ownership in respect of the foreign target’s Hungarian subsidiary, that is a strategic company), (ii) among associated businesses (kapcsolt vállalkozás) within the meaning of Act C of 2000 on accounting, that are executed in respect of an entity incorporated in a country outside of Hungary.

8. Scope - sectors covered

The 2018 FDI Regime

The pre-screening procedure according to the 2018 FDI Act is applicable only for the activities in the economic sectors important to national security as follows:

weapon and ammunition production, production of military technology, equipment subject to authorization;
dual-use product production;
production of intelligence tools;
provision of financial services and functioning of payment systems;
services in the field of electricity, supply of natural gas, water utility services and electronic communications; and
set-up, development, and operation of electronic information systems subject to the Act on Electronic Information Security of Central and Local Government Agencies.

It is important to note that the scope of relevant activities is further narrowed down by the government decree executing the act (during the state of emergency, government decree no. 532/2020, and apart from the state of emergency, government decree no. 246/2018. (XII.17.).

The 2020 FDI Regime

A strategic company (the acquisition of which may trigger a notification obligation) is defined as a limited liability company, public company limited by shares, private company limited by shares incorporated in Hungary, which engage in “strategic activities” in “strategic sectors” as defined in the regime. Government Decree no. 289/2020 (VI.17.) completes the regime by setting out the exact list of sectors and activities (within such sectors) that are of strategic importance. These include communication, trade (retail, wholesale, vehicle), energy, agriculture, food industry, IT, construction industry, production of medical equipment, tourism, labor hire (note that this list is supplemented, according to the lex specialis rules applicable only until 31 May 2023, with certain bank and insurance sector activities).

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

According to the 2018 FDI Act and the 2020 FDI Act, in case of a new establishment, or taking up a new strategic activity, the screening procedure starts with a mandatory notification after establishment of a new enterprise or acquiring ownership in enterprises engaged in the specified activities (see section 8). In other cases, under both Regimes, the screening may be started with the submission of the notification on the transaction, after the conclusion of the relevant transaction document.

As a general rule, both regimes are silent on as to whether a preliminary opinion may be obtained from the authorities, before the conclusion of the transaction documents, and performing the filing obligation.

The foreign investor may acquire the right of use or operation of infrastructure, facilities and assets for the relevant activities after the ministers’ acknowledgment.

The notification obligation under the regimes is mandatory, if a transaction falls under the scope of the Regimes, respectively.

10. Design – reciprocity?

There are no express reciprocity provisions in Hungarian law. However, bilateral investment treaties concluded by Hungary operate on a reciprocal basis. Such agreements contain clauses designed to protect investments made by investors of either contracting party in the territory of the other contracting party.

11. Design – Procedures and Deadlines

The foreign investor shall notify the relevant minister (see section 6) within ten days from signing the contract or pre-contract targeting the acquisition of ownership or the right of operation. In the case of newly adopted activity in the company registry, the minister shall be notified within ten days of its registration.

The minister informs the investor about the receipt of the notification within a maximum of eight days. After receiving the notification the Minister shall check that the notification complies with the requirements and examine whether the activities carried out by the investor may pose a real threat to national security interests.

Under the 2018 Regime the minister notifies the investor within 60 days following the receipt of the notification and sends the acknowledgement of the acquisition of ownership, or the prohibition. In especially justified cases the term can be prolonged with 60 days.

Under the 2020 Regime the minister has 30 business days to assess the file and adjudicate whether it grants its acknowledgment or prohibits the transaction. In special cases of high complexity the minister may prolong the procedure for an additional 15 days.

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

Filing forms are not available. The statutes set out the content and disclosure requirements regarding the notification.

The notification (under both regimes) shall include (in case a legal person or other organization) the name, seat and seat of branch in Hungary, specification of the state performing the duties related to the official registration, contact details for written communication, the data of the legal entity or other organization acting behalf of the foreign investor.

In the notification the foreign investor shall (i) outline the business activity and enclose all documents on the basis of the ownership structure of the investor and the beneficial owner (as specified in the Act 53 of 2017 on the prevention and combating of money laundering and terrorist financing) can be established, and (ii) describe the transaction at hand.

In the notification, all the documents arising out of the legal transaction targeting the ownership acquisition or the right of operation or registration of the newly adopted activity shall be enclosed.

Both regimes underline that disclosure of the ownership structure of the foreign investor, especially documents based on which the beneficial owner (within the meaning of the Hungarian Anti-Money Laundering Act) may be established, is of key importance.

The language of the notification shall be Hungarian. If a document submitted is not issued in the Hungarian language, an official Hungarian translation must be annexed to the notification.

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

Under the FDI Regimes the respective notification processes may end with the ministers’ confirmation of the acknowledgement of the notification or with the prohibition of the acquisition of ownership, the right of operation or company registry. In addition, the authority may establish that the 2018 Regime, or the 2020 Regime is not applicable to a certain transaction (this decisional outcome is not expressly set out in the regimes but have occurred in our experience).

In the case of prohibition, the acquiring party shall not be entered in the share register or the membership rights cannot be exercised.

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

Pursuant to the 2018 FDI Act, acknowledgment obtained thereunder is a pre-condition to any further authorization procedures necessary for the acquisition of ownership (in connection with the same strategic activities).

The 2020 FDI Regime does not interfere with other notification/authorization procedures set out in other regulations, which concern the acquisition of ownership, acquisition of usufruct, bonds, and operation rights.

The 2018 FDI Regime:

The minister may prohibit the acquisition of ownership, the right of operation by the foreign investor or the conduct of newly adopted activities on the basis that the investment violates Hungary’s security interest, or the legal entity was established for or serves the purpose of making the control difficult and circumventing the procedure.

The minister has a wide scope of discretion in evaluating the circumstances.

The 2020 FDI Regime:

The minister may prohibit a transaction if its assessment establishes that:

the notification is not line with the requirements set out in the act;
the acquisition by the acquirer of the ownership interest impairs or endangers the national interest, public order or public safety of Hungary, with a view especially of the safety of satisfying basic necessities of the society;
directly or indirectly the acquirer is under the control of a public administration organ/governmental body (közigazgatási szerv) (including armed authorities and public organs) of a state outside of, or belonging to the EU, via its ownership structure or material financing;
the acquirer has already been involved in any activity that impairs the safety and public order in any EU member state; or
there is a risk that the acquirer will conduct illegal or criminal activities.

Based on the strict interpretation of the wording of the 2020 FDI Act, if a circumstance listed above is present, the minister automatically prohibits a transaction. Nevertheless, in an informal guidance the ministry referred to the fact that prohibition is not automatic and the minister has discretion to decide.

16. Judicial Review

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

Hungarian law provides the investors with the opportunity to seek judicial review in cases related to FDI.

Under the FDI Regimes, the prohibiting decision may be contested for the violation of essential procedural rules or in relation to the qualification. The Budapest Capital Regional Court has exclusive jurisdiction in respect of these cases. If the court finds that the law was violated, they shall repeal the decision and the Minister shall be obliged to launch a new procedure. There is no room to amend the decision.

If the foreign investor or the FDI suffers damages owing to a regulatory measure imputable to the Hungarian state, a suit for damages may be brought before the competent Hungarian courts, usually within the general limitation period of five years. If the dispute is based on a contractual relationship between the foreign investor or the FDI and the Hungarian state, usually the dispute resolution clause of the contract specifies the procedure to be followed.

Furthermore, disputes concerning FDI that fall under the scope of a bilateral investment treaty concluded by Hungary may usually be referred to arbitration depending on the specific dispute resolution clause contained in the relevant treaty.

17. Publication in Official Gazette or other

The 2018 and 2020 Regimes do not expressly contain provisions on any publication requirement but provide that the minsters in charge keep a register of the acknowledgments and prohibitions they issue.

Data registered under the 2018 Regime will be deleted from the respective register (i) five years from the submission of the notification, in the case of a refusal issued by the minister, (ii) five years from the final and binding closure of a judicial review procedure, (iii) upon the deletion from the company register of the relevant transaction, in the case of an acknowledgment issued by the minister.

Data registered under the 2020 Regime will be deleted from the respective register after (i) six months from the moment when the minister gained knowledge of the relevant transaction, but at the latest, (ii) five years from the occurrence of the relevant circumstances.

The regimes do not specify whether these registers are available for inspection.

Certain judicial decisions of Hungarian courts are published in the Official Gazette by redaction of the name and confidential data of the parties.

Arbitral awards are either confidential or public, depending on the parties’ agreement and the relevant Rules of Arbitration.

18. Relevant Examples of application

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

Ministerial decisions are not publicly available.

We are aware from judicial reviews made public of 2 prohibitions under the 2020 FDI Regime.

We are also aware of 1 prohibition under the 2018 FDI Regime (the Vienna Insurance/ AEGON case, in connection with which the European Commission.

19. Stakeholders views on the Legal Framework

The notification processes place considerable administrative burden on the investor, given the cost and time implication of these processes, which, therefore, must be taken into consideration upon the planning of the transactions. In our experience, FDI screening is becoming more widely accepted among experienced investors, especially in multijurisdictional deals.

20. Interplay with the future EU Regulation

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

The existing Hungarian legislation ensures the prevalence of the principles of freedom of establishment and free movement of capital, and provides sufficient guarantees for investment protection in accordance with EU law.

The 2018 Regime was meant to implement the Regulation. Due to the pandemic, the (i) scope of the 2018 Regime was modified in November 2020, and (ii) 2020 Regime was introduced. Currently, each regime applies to investors with a purely EU ownership background, as well.

Currently there is one case pending as a request for preliminary ruling before the European Court of Justice (Case C-106/22) in which the court’s assessment was requested on the question whether certain provisions of the 2020 FDI Regime is in line with EU law.

It has to be noted, however, that on March 6, 2018, the Court of Justice of the EU in Slovak Republic v. Achmea BV (C-284/16) (Achmea Decision) determined in a preliminary ruling that investor-state arbitration provisions contained in intra-EU bilateral investment treaties are contrary to the Treaty on the Functioning of the EU and are thus precluded.

Given that Member States of the EU were bound to draw the necessary consequences from the Achmea Decision, in January 2019 Hungary joined 27 EU Member States in committing to terminate all intra-EU bilateral investment treaties and on 5 May 2020 signed the agreement for the termination of intra-EU BITs (the Termination Treaty). The Termination Treaty became effective on 29 August 2020 vis-à-vis Hungary.

21. Other relevant information

N/A

Contacts: Blanka Börzsönyi, David Kohegyi and Andras Nemescsoi

Last updated June 2023

1. Country: Ireland

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

According to the Central Statistics Office (CSO)¹, the five biggest ultimate investor FDI countries of origin in Ireland in 2021 were:

United States (EUR913.34 billion)
Other (EUR152.16 billion)
Offshore Centres (EUR44.41 billion)
France (EUR19.45 billion)
United Kingdom (EUR16.66 billion)

¹Foreign Direct Investment Annual 2021 - CSO - Central Statistics Office

3. Legal Framework in Force

Ireland does not currently have an FDI screening framework. On 2 August 2022, the Irish Government published a draft of the Screening of Third Countries Transactions Bill 2022 (Screening Bill). The Screening Bill provides for the introduction of the first ever screening regime for FDI into Ireland. On 23 January 2023, the Screening Bill passed Committee Stage in the Irish Parliament – and although some minor modifications may be expected, the Screening Bill will likely be adopted in Q2 or Q3 of 2023.

4. Last revision of the Legal Framework

N/A

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

Ireland is a predominantly open, free-market economy. Outside of the specific frameworks discussed at Question 14 below, Ireland has not (yet) enacted a specific FDI screening framework to assess investments that are likely to affect security or public order (e.g., investments in critical infrastructure, technologies or other sensitive industries).

On 19 March 2019, the EU adopted Regulation 2019/452 (EU FDI Regulation). In broad terms, the EU FDI Regulation establishes a common framework to allow EU Member States to monitor FDI flows by investors from outside of the EU which might adversely affect security or public order, and if necessary, to oppose or unwind such investments. The definition of an FDI is broad and includes investments of “any kind.” Explanatory guidance to the original proposal suggested that this may cover acquisitions, mergers, real estate investments, securities investments, loans, etc. The EU FDI Regulation entered into force on 11 October 2020.

Even though Ireland is not obliged to adopt national screening measures, the EU FDI Regulation requires Ireland to (i) set up a national contact point to enable sharing of information relevant to screening investments which may affect security or public order, and (ii) submit an annual report to the European Commission with aggregated information on foreign direct investments that took place in Ireland. At national level, the Department for Enterprise, Trade and Employment (DETE) is responsible for trade matters within the Irish government. In the run-up to the passage of the EU FDI Regulation, the Trade Policy Unit of the DETE noted that the rules were a "high priority" and actively monitored its legislative progress. A key aim disclosed by the Trade Policy Unit was to ensure that Ireland was not obliged to enact FDI screening rules. While Ireland ultimately succeeded on ensuring that the EU FDI Regulation did not provide for mandatory FDI screening, the EU FDI Regulation envisages that EU counterparts in another Member State may request Ireland to comment on an investment in Ireland by a third-country investor.

As discussed at Question 3, on 2 August 2022, the Irish Government published a draft of the Screening Bill. The Screening Bill provides for the introduction of the first ever screening regime for FDI into Ireland. The Screening Bill is intended to give effect to the EU FDI Regulation and ensure that Ireland fulfils its obligations as set out in the EU FDI Regulation. Although Ireland is following a well-worn path, there is concern that the Screening Bill, as drafted, opts for a maximalist approach that is out of step with Ireland’s long-standing investor-friendly environment, with the potential to adversely impact a range of ordinary course transactions across multiple sectors in the Irish FDI landscape.

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

In its current draft, the Screening Bill provides that a transaction is notifiable if, amongst other listed criteria, a third country undertaking, or a person connected with such an undertaking, is an acquiring party to the transaction. A third party country is considered a state or territory other than the Republic of Ireland, another EU Member State, a member of the EEA, and Switzerland. This reflects the intention expressed during the parliamentary debates that the attention would be on the acquiring party as opposed to the target.

7. Scope - screening thresholds

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

The draft Screening Bill currently requires transactions to be notified where:

the ‘value of the transaction’ (not yet defined) is EUR2 million or higher;
it involves a ‘third country’ firm or person or connected person acquiring an Irish entity (i.e., any country outside of the EU, EEA and Switzerland) (as discussed in Question 6);
the transation falls within the sectors described in Question 8;
either:
- the acquiring party acquires control of an asset in the State, OR
- the transaction involves shares or voting rights in a firm in Ireland moving from 25% or less to more than 25% of shares or voting rights in that firm, or from 50% or less to more than 50% of shares or voting rights in that firm.²

In addition, the Minister for Enterprise, Trade and Employment (Minister) will have broad powers to review non-notifiable transactions where there are reasonable grounds for believing that the transaction may affect security or public order in Ireland.³ The Screening Bill also provides the Minister with retrospective powers to review non-notifiable transactions for a period of 15 months post completion, and non-notified transactions for a period of up to 5 years, where there are security and public order concerns.

²Section 9, Screening Bill
³Section 15, Screening Bill.

8. Scope - sectors covered

In its current draft, the Screening Bill refers to the matters listed in Article 4(1) of the EU FDI Regulation, namely:

critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 ( 15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;
supply of critical inputs, including energy or raw materials, as well as food security;
access to sensitive information, including personal data, or the ability to control such information; or
the freedom and pluralism of the media.⁴

⁴Section 9 Screening Bill.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

The current draft Screening Bill provides for a suspensory prior notification regime that is mandatory in nature.

The assessment of "control" is the same as the concept used in the EU and Irish merger control regime. A person is regarded as exercising control of:

an asset, where that person has ownership of, or the right to use, all or part of the asset, and
an undertaking, where that person can exercise decisive influence over the activities of the undertaking by any means, including as a consequence of:
1. the existence of rights or contracts conferring decisive influence on the composition, voting or other commercial decisions of the undertaking, or
2. ownership of, or the right to use, all or part of the assets of the undertaking.

Control of an asset or of an undertaking shall be regarded as being acquired by a person who gains an ability to exercise control of the asset or of the undertaking for the first time or to a greater extent.

The threshold to notify a transaction is met if, in addition to the other criteria discussed at Question 7, shares or voting rights in a firm in Ireland moving from 25% or less to more than 25% of shares or voting rights in that firm, or from 50% or less to more than 50% of shares or voting rights in that firm.

10. Design – reciprocity?

N/A

11. Design – Procedures and Deadlines

The current draft Screening Bill provides for the procedure set out below:

Parties to a notifiable transaction shall, not less than 10 days before the date on which the transaction is completed notify the Minister of the transaction.⁵
When notifying the Minister, the parties must provide the information set out in Question 12.
After commencing a review of a transaction, the Minister, as soon as practicable, will provide all parties to the transaction, and any other person the Minister considers appropriate, with a “screening notice”. A screening notice will be in writing and contain a statement (a) summarising the reasons for which the transaction is being reviewed, (b) that the person to whom it is addressed may make written submissions to the Minister regarding the transaction, and (c) regarding any other matter that the Minister considers to be appropriate in the circumstances.⁶
Where a screening notice is issued in relation to a transaction, the transaction shall not be completed, and the parties to the transaction shall not take any action for the purpose of completing or furthering the transaction, from the date on which the screening notice until a decision is made by the Minister.⁷
As referred to in the screening notice, parties to a transaction that is being screened by the Minister have a the right to make written submissions to the Minister.⁸
The Minister is required to make a screening decision on or before the later of (a) 90 days from the date on which the screening notice in relation to the transaction is issued, or (b) such date, not being more than 135 days from the date on which the screening notice in relation to the transaction is issued, as the Minister may specify in a notice in writing to the parties to the transaction within the 90 day period. The failure to make such a decision within the time period provided results in the transaction automatically being allowed to proceed.⁹
The timeline is stopped and restarted if an additional request for information is issued by the Minister.¹⁰ A request for additional information is discussed in Question 12.

⁵Section 10, Screening Bill.
⁶Section 14, Screening Bill.
⁷Section 17, Screening Bill.
⁸Section 21, Screening Bill.
⁹Section 16, Screening Bill.
¹⁰Section 20, Screening Bill.

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

The procedure for filing has not yet been determined.

However, the current draft Screening Bill provides that parties to a notifiable transaction must provide the Minister with the following information in relation to the transaction:

the identities of the parties (including, where applicable, name, trading name, registered address, domicile, NACE classification code, registered office and registration number);
the ownership structure of the parties to the transaction, including information on persons participating in the capital of the undertaking and persons exercising control over the parties;
the approximate value of the transaction;
information on the products, services and business operations of the parties to the transaction;
the nature of the economic activities carried out in the State by the parties to the transaction;
the funding of the transaction and its source;
the date on which the transaction is proposed to be completed;
the state or territory under whose laws the parties are constituted, registered, or otherwise organised;
the Member States in which the parties carry out economic activities;
the annual turnover and total number of employees of each party;
details of any sanctions or restrictive financial measures imposed on the parties by the European Union; and
any other information that is necessary for the Minister to review the transaction.

If the Minister determines that additional information is required from any of the parties to the transaction in order to inform the screening process. The Minster may request this information by issuing a “notice of information” to a relevant party. The notice will detail the information required and the period within which the notice must be complied with.¹¹

¹¹Section 19, Screening Bill.

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

Where the Minister makes a screening decision that a transaction affects, or would be likely to affect, the security or public order of the State, and does not make a direction in relation to the transaction, the parties cannot complete the transaction, or take any action for the purpose of completing or furthering the transaction.

Where the Minister makes a screening decision that a transaction affects, or would be likely to affect, the security or public order of the State, the minister may make a direction in relation to the transaction. The parties cannot complete the transaction or take any action for the purpose of completing or furthering the transaction, other than in accordance with the direction.

Where there is a finding that a transaction poses a threat to security or public order, the Minister may allow the transaction to proceed subject to a direction that certain conditions or actions are met, such as:

Not to complete the transaction, or parts of it specified by the Minister.
Not to complete the transaction, or parts of it, before or after dates specified by the Minister.
To sell or divest itself or divest itself of any matter.
To modify or constrain its conduct in specified ways.
To cease a specified conduct.
To prevent the flow of sensitive information within an undertaking.
To report to the Minister on parties’ compliance with the conditions imposed.
To pay the reasonable costs associated with monitoring compliance with condition.¹²

¹¹Section 18, Screening Bill.

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

Mergers, acquisitions and full function joint ventures that meet the financial thresholds in the Competition Acts 2002 to 2022 must be notified to the Competition and Consumer Protection Commission (CCPC) before they are put into effect. The current financial threshold is met where two undertakings generate a combined turnover of more than EUR60 million in Ireland, and each undertaking generates a turnover of more than EUR10 million in Ireland. The CCPC investigates and determines whether a merger may be approved, approved with conditions or prohibited.

Once commenced, the Competition (Amendment) Act 2022 will allow the CCPC to 'call in' or require notification of transactions that do not meet the current financial thresholds and are therefore not subject to mandatory notification.

In addition, media mergers are subject to a mandatory notification obligation and are reviewed separately by the CCPC and the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media.

In certain sectors, other forms of regulatory scrutiny may apply. For example:

Financial services may require authorization and may be subject to regulation by the Central Bank of Ireland.
Broadcasting activities may require notification and authorization from the BAI.
Telecommunication services may require licensing from the Commission for Communications Regulation (ComReg).
Medical products are subject to regulation by the Health Products Regulatory Authority (HPRA).

The Minister, when reviewing a transaction, will consider whether or not the transaction affects, or would be likely to affect, the security or public order of the State. The current draft text of the Screening Bill provides that when doing so, the Minister shall have regard to:

whether an investor is controlled by a third country government and, where relevant, the extent to which such control is inconsistent with the policies and objectives of the State;
the extent to which parties to the transaction are involved in activities related to security or public order;
whether or not a party to the transaction has previously taken actions affecting the security or public order of the State;
any evidence of criminality among the parties to a transaction;
the likelihood of the transaction resulting in actions that are disruptive to people, assets or undertakings in the State;
whether or not the transaction is likely to have a negative impact in the State on the stability, reliability, continuity or safety of one or more of the matters referred to in points (a) to (e) of Article 4(1) of the Regulation;
whether or not the transaction would result in persons acquiring access to information, data, systems, technologies or assets that are of general importance to the security or public order of the State;
the views of the European Commission and other EU Member States;
the extent to which the transaction affects, or would be likely to affect, the security or public order of a Member State other than the State or of the European Union; and
the extent to which the transaction affects, or would be likely to affect, projects or programmes of Union interest within the meaning of Article 8 of the EU FDI Regulation.¹⁴

Where the Minister believes that providing reasons for a screening decision would create a risk to the security or public order of the State, the Minister has the discretion to decide not to provide the parties with such reasons, to the extent necessary in order to avoid or minimise such risk.¹⁵

¹³Section 18, Screening Bill.
¹⁴Section 13, Screening Bill.
¹⁵Section 16, Screening Bill.

16. Judicial Review

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

The current draft of the Screening Bill provides the parties with a right to appeal:

a screening decision; or
a decision of the Minister not to provide reasons for a screening decision where the Minister believes that providing reasons for a screening decision would create a risk to the security or public order of the State.

An appeal must be made by a party no later than 30 days after being notified of the decision.

After receiving a notification of an appeal, the Minister is required to designate an adjudicator or adjudicators from a panel of appointed adjudicators to hear the appeal.

In an appeal, a party may raise any of the grounds of challenge that could be raised in judicial review proceedings against the decision.

The decision of the adjudicator is final except that an appeal from the decision of an adjudicator may be made to the Irish High Court on a point of law not later than 30 days from the date on which a party was notified of the decision.¹⁶

The procedure for appealling a screening decision is set out in the Screening Bill.¹⁷

¹⁶Section 34, Screening Bill.
¹⁷Section 27, Screening Bill.

17. Publication in Official Gazette or other

N/A

18. Relevant Examples of application

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

N/A

19. Stakeholders views on the Legal Framework

The Irish government actively promotes foreign investment and the Industrial Development Agency (IDA) is an autonomous state funded body which promotes FDI into Ireland. The IDA provides support to investors and offers a grant aid system to incentivize companies who are investing and meet certain criteria.¹⁸

¹⁸Ireland's Foreign Direct Investment (FDI) Agency | IDA Ireland

20. Interplay with the future EU Regulation

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

As discussed in Question 5, the Screening Bill is intended to give effect to the EU FDI Regulation. The Screening Bill is currently in draft form and the final text of the Screening Bill has yet to be finalised.

21. Other relevant information

During the legislative process, we made submissions to the Department of Enterprise, Trade and Employment on the scope of the current draft text of the Screening Bill. The submissions were reviewed and considered. An updated draft of the Screening Bill was published on 25 January 2023 in conjunction with a debate in the Irish Parliament. The Bill will continue to be debated in both chambers of Parliament and is likely to face further scrutiny and possibly further amendments. The expectation is that the Screening Bill will be adopted in Ireland in Q2 or Q3 of 2023, with enforcement in Q3 or Q4 of 2023. We are continuing to monitor this closely.

Contacts: Darach Connolly and Emer McEntaggart

Last updated June 2023

1. Country: Italy

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

According to the latest statistics provided by the Bank of Italy (inward FDI stocks by Ultimate Investing
Company/Ultimate Investing Country), in 2021 the five biggest FDI countries of origin were:

France (approx. 22.2%)
US (approx. 10.4%)
Germany (approx. 8.3%)
UK (approx. 7.3%)
Switzerland (approx. 5.3%)

3. Legal Framework in Force

Decree No. 21 of 15 March 2012, ratified by Law No. 56 of 11 May 2012 (Decree 21/2012), as subsequently amended, grants special powers to the Italian government in relation to transactions involving national strategic activities/assets in various sectors (defense and national security, energy, transport, communications, 5G technologies and other sectors).

The applicable national legislation also comprises the following implementing measures:

Prime Ministerial Decree No. 108 of June 6, 2014, which identifies the activities of strategic relevance in the defense and national security sectors, as defined by Article 1, paragraph 1, of Decree 21/2012;
Decree of the President of the Republic No. 35 of February 19, 2014, governing the review process in the defense and national security sectors, pursuant to Article 1, paragraph 8, of Decree 21/2012;
Decree of the President of the Republic No. 86 of March 25, 2014, governing the review process in the energy, transport and communications sectors, pursuant to Article 2, paragraph 9, of Decree 21/2012;
Decree of the Secretary General of the Presidency of the Council of Ministers adopted on February 18, 2015, providing ad hoc notification forms.
Decree of the Presidency of the Council of Ministers No. 179 of December 18, 2020, which identifies the goods and the relationships (strategic assets and activities) of national interest in the sectors provided by Article 4, paragraph 1, of the Regulation (EU) No. 2019/452, as per Article 2, paragraph 1-ter, of Decree 21/2012;
Decree of the Presidency of the Council of Ministers No. 180 of December 23, 2020, which identifies the strategic assets in the energy, transport and communications sectors, as per Article 2, paragraph 1, of Decree 21/2012 (DPCM 180/2020). This Decree replaced the Decree of the President of the Republic No. 85 of March 25, 2014;
Decree of the Council of Ministers No. 133 of August 1, 2022, regulating the activities of the Presidency of the Council of Ministers for the exercise of the special powers and introducing the pre-notification system and measures which simplify the proceedings.

4. Last revision of the Legal Framework

The latest revisions of the applicable legal framework have been introduced by the following acts:

Decree No. 22 of March 25, 2019, ratified by Law No. 41 of May 20, 2019, providing for a screening mechanism in relation to broadband electronic communication services based on 5G technologies;
Decree No. 21 of March 21, 2022, ratified by Law No. 51 of May 20, 2022, amending the screening mechanism in relation to broadband electronic communication services based on 5G technologies;
Decree No. 64 of July 11, 2019, representing a first attempt to review the whole FDI legislation, not ratified;
Decree No. 105 of September 21, 2019, ratified by Law No. 133 of November 18, 2019, significantly amending the screening mechanism applicable to all the relevant sectors and implementing the provisions of Regulation (EU) No. 2019/452 (Decree 105/2019);
Decree No. 23 of April 8, 2020, ratified by Law No. 40 of June 5, 2020 laying down urgent measure to mitigate the effects of the COVID-19 outbreak, which has further extended the scope of FDI legislation and introduced the power of the Italian government to initiate ex officio an investment screening procedure even in cases of breach of the notification obligation (Decree 23/2020);
Decree of the Council of Ministers No. 133 of August 1, 2022, regulating the activities of the Presidency of the Council of Ministers for the exercise of the special powers and introducing the pre-notification system and measures, which simplify the proceedings.

Before the adoption of Decree 105/2019 the following sectors were subject to the FDI screening mechanism:

defense and national security;
electronic broadband telecommunications networks in 5G technology;
energy, transport and communications sectors.

Decree 105/2019, amending Decree 21/2012, extended the scope of the FDI regime to the assets falling within the sectors under Article 4(1), of Regulation (EU) No. 2019/452 (FDI Regulation), entrusting the Decree of the President of the Council of Ministers No. 179 of December 18, 2020 (DPCM No. 179/2020) the task to identify in detail such additional assets. The DPCM No. 179/2020 identifies the relevant strategic assets and activities, pursuant to Article 4(1) of the FDI Regulation, within the following sectors to which the FDI screening mechanism applies:

energy sector;
water sector;
health sector;
sector for processing, storage and accessing and controlling sensitive data and information;
electoral infrastructures sector;
financial sector, including credit and insurance sectors, and the sector for financial market infrastructures;
sector for artificial intelligence, robotics, semiconductors, cybersecurity, nanotechnologies and biotechnologies;
sector for non-military aerospace infrastructure and technologies;
sector for inputs supply and agricultural;
dual use items sector; and
freedom and pluralism of the media sector.

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

Decree 21/2012 repealed Article 2 of Law Decree No. 334 of May 31, 1994, which established the right of the Italian government to hold a certain amount of shares in companies operating in strategic sectors, on the basis of which the government was able to influence the decisions of the undertakings concerned (so‐called golden shares).

The provisions of Law Decree No. 334 of 1994 were found to be incompatible with the EU principle of free movement of capital, as they were likely to discourage foreign investments.

In order to comply with the principles developed by the EU Court of Justice in its case law, the government decided to intervene by adopting Decree 21/ 2012, which sets out an exhaustive list of special powers to be exercised by the government on the occurrence of specific events concerning undertakings active in certain strategic sectors, subject to compliance with objective and non-discriminatory criteria (so‐called “golden powers”).

6. Scope - Screening Mechanism – origin of FDI

(review of intra- or extra-EU FDI)

Are there any loopholes?

As a general rule, investments covered by Decree 21/2012 must be notified to the Italian government within a certain time-limit to enable the government to exercise its special powers, subject to the conditions prescribed thereby.

The review procedure set out in Decree 21/2012 is applicable to acts, resolutions, transactions and acquisitions of equity interests involving companies carrying out strategic activities in the defense and national security sectors, or companies holding strategic assets or carrying out strategic activities in the energy, transport, communications (as better identified by DPCM 180/2020) and sectors envisaged by Article 4(1) of the FDI Regulation (as better identified by DPCM No. 179/2020).

Defense and National Security

The review process applies to investments made by any person, other than the Italian state, national public entities and state-controlled entities, irrespective of nationality.

Energy, Transport, Communications Sectors and Health, Agricultural and Financial sector, including Credit and Insurance Sectors

The investment control regime in principle applies both to investments made by non-EU persons and by EU persons, including those resident in Italy.

Other Sectors under Article 4(1) of the FDI Regulation (as identified by Decree 179/2020)

The investment control regime in principle applies only to investments made by non-EU persons.

For the purposes of Decree 21/2012, a non-EU person is defined as:

any individual who does not hold citizenship of one of the EU member States;
any individual who holds citizenship of one of the EU member States and who does not have the legal or the usual residence or the main center of business in a EU or EEA member State and is not established therein;
any entity whose registered office, headquarters or main place of business is not located in a EU or EEA member State and is not established therein;
any entity whose registered office, headquarters or main place of business is located within a EU or EEA member States, or which is established therein, and that is controlled, directly or indirectly, by any individual or entity as per letter a), b) and c) above;
any individual or entity having the citizenship of one of the EU or EEA member States, whose legal or usual residence, registered office, headquarters or principal place of business is located within the EU, or which is established therein, for the purpose of circumventing the provisions of Decree 21/2012.

5G technologies

The screening mechanism applies in the event of acquisitions, including by means of contracts or agreements, by Italian companies of (i) assets or services regarding the design, realization, maintenance and management of 5G-based broadband ECS (i.e. electronic communication services) or cybersecurity related services, assets, relationships, activities and technologies, or (ii) technology-intensive equipment aimed at such realization or management, from both non-EU and EU suppliers and/or providers.

Please note that FDI notification is required for intra-group transactions as well, although they are not in principle subject to the special powers of the government. This exemption does not apply if well-founded information shows that the intra-group transaction at stake is likely to pose a serious harm to the national interests regarding, among others, the national security and defense system, public order, the safeguarding and operation of networks and facilities.

7. Scope - screening thresholds

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

Defense and National Security
Notification is mandatory for any kind of investment involving companies operating in the defense and national security sectors if it leads to the acquisition of any interest exceeding 3%, 5%, 10%, 15%, 20%, 25% and 50% of the share capital.

Energy, Transport, Communications Sectors and Health, Agricultural and Financial sector, including Credit and Insurance Sectors
Notification is mandatory for the following transactions:

resolutions, acts and transactions adopted by any company that owns strategic assets and/or carries out strategic activities whenever such resolutions, acts or transactions have the effect of changing the ownership, control or availability of the same assets in favour of any EU and non-EU subject. It is expressly set forth that such acts, resolutions or transactions include the mergers, de-mergers, transfer of the registered office out of Italy, the assignment as guarantee, amendments of the by-laws, transfer of business and going concerns as well as the transfer of subsidiaries owning the strategic assets;
acquisitions of participations in companies that own strategic assets and/or carry out strategic activities, by any EU and non-EU subject whenever such acquisition determines the acquisition of control over the relevant company by such subject;
acquisition of participations in companies that own strategic assets and/or carry out strategic activities, by any non-EU subject, if the overall amount of the investment is at least equal to EUR 1,000,000.00 and the acquired participation in the target is at least equal to 10%, taking into consideration the interests already directly or indirectly held; or, regardless of the amount of the investment, any subsequent acquisition exceeding 15%, 20%, 25% or 50% thresholds;
the set-up of a company that carries out strategic activities or holds one or more of the assets of strategic relevance if one or more non-EU shareholders hold participations of at least 10%.

Other Sectors under Article 4(1) of the FDI Regulation (as identified by Decree 179/2020)

resolutions, acts and transactions adopted by any company that owns strategic assets and/or carries out strategic activities whenever such resolutions, acts or transactions have the effects of changing the ownership, control or availability of the same assets in favour of any non-EU subject. It is expressly set forth that such acts, resolutions or transactions include the mergers, de-mergers, transfer of the registered office out of Italy, the assignment as guarantee, amendments of the by-laws, transfer of business and going concerns as well as the transfer of subsidiaries owning the strategic assets;
acquisition of participations in companies that own strategic assets and/or carry out strategic activities by any non-EU subject whenever such acquisition determines the acquisition of control over the relevant company by such subject;
acquisition of participations in companies owning strategic assets and/or carries out strategic activities by a non-EU subject, if the overall amount of the investment is at least equal to EUR 1,000,000.00 and the acquired participation in the target is at least equal to 10%, taking into consideration the interests already directly or indirectly held; or, regardless of the amount of the investment, any subsequent acquisition exceeding 15%, 20%, 25% or 50% thresholds;
the set-up of a company that carries out strategic activities or holds one or more of the assets of strategic relevance if one or more non-EU shareholders hold participations of at least 10%.

5G technologies

Notification is mandatory in relation to acquisition, including by means of contracts or agreements, for any reason, of:

assets or services regarding the design, realization, maintenance and management of 5G-based broadband electronic communication services or cybersecurity related services, assets, relationships, activities and technologies; and
technology-intensive equipment aimed at such realization or management from both non-EU and EU suppliers and/or providers.

Any undertaking aiming to carry out the above acquisition is required to notify to the Italian government, before such acquisition, with an annual plan (Plan).

8. Scope - sectors covered

Prior notification and review procedure.
Please refer to question 7.
Mandatory.

9. Design of FDI Screening Mechanism

Please indicate notably the following:

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

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

(c) Mandatory or voluntary nature?

10. Design – reciprocity?

According to Article 3 of Decree 21/2012, the acquisition, in any form, by a non-EU person of equity interests in companies having strategic assets and/or carrying out strategic activities within the sectors deemed to be of strategic relevance according to the Italian FDI regime, is subject to the reciprocity principle, as enshrined in the international agreements entered into by Italy or by the EU.

11. Design – Procedures and Deadlines

Relevant acquisitions of equity interests in companies having strategic assets and/or carrying out strategic activities within the sectors deemed to be of strategic relevance according to the Italian FDI regime must be notified to the competent office of the Presidency of the Council of Ministers within ten days from the signing of the transaction and, in any case, prior to its implementation, by the purchaser together with, where possible, the target company.

Upon receipt of the notification, the government has a 45 days period to exercise its special powers, after which the transaction can be completed. This period may be suspended once if additional information/documents are required by the government to the notifying party and/or other third parties; additional information/documents must be provided by the investor or the target within 10 days and by other third parties within 20 days.

Decree 23/2020 has introduced the power for the government to start the screening mechanism ex officio, even in cases of failure to notify. In such cases, the term for the exercise of the special powers runs from the conclusion of the proceeding which ascertains the breach of the obligation to notify.

Until the expiration of the above mentioned 45 day period (or until clearance by the Italian government, if earlier), the effects of the notified resolutions, acts or transactions, as well as voting rights and any other non-property rights attached to the acquired interests, are suspended.

Specific rules apply with reference to the relevant transaction within the 5G sector. The Plan is required to be notified to the Italian government before the relevant acquisition is completed. Subsequent to the notification, the Italian government has a 30-day period for the screening of the Plan. The 30-day term can be extended for up to 20 days if in-depth technical analysis is required. This can be extended once for a further period of up to 20 days, if the analysis is particularly complex. If the government finds that it is necessary to request information from the notifying party, or third parties, the above term could be suspended once, until receipt of the requested information (to be provided within ten days when requested from the notifying party or within 20 days when required from third parties). If the government finds that the notification is not complete, the 30-day term starts afresh from the receipt of the information, which completes the notification.

Subsequent to the notification, pending the government screening, the Plan cannot be implemented (and therefore the relevant acquisitions cannot be completed), but it may be updated on a quarterly basis.

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

Filing forms are available on the government’s website. The notification must include all the documents and information that may be necessary for the government to carry out its assessment (e.g., minutes of the resolutions, a detailed description of the investor, etc).

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

If, at the end of the screening procedure of the transaction, subsequent to the notification, or opened by the government upon its own initiative, the Italian government believes that the transaction may pose a risk to national interests, security or the public order, it may exercise its “golden powers”, i.e. the power to veto the transaction or impose conditions for the implementation of the transaction.

The applicable provisions do not expressly prescribe the type of conditions that the government may impose upon the parties to the transaction for the implementation of the notified transaction. Furthermore, the decisions with which the Italian government exercises the “golden powers” are not publicly available.

The conditions are imposed by the government – on a proportional and reasonable basis – with the purpose of protecting national interests, when the imposition of conditions suffices for such purpose instead of vetoing the transaction.

According to the yearly reports prepared by the Italian government, which describes the notified transactions and includes a brief summary of the decisions adopted as the outcome of the screening procedure, it appears that the conditions imposed by the government are usually intended to: (i) protect the know-how and strategic assets of the Italian company being acquired; (ii) ensure that the corporate governance of the Italian company being acquired, resulting from the transaction, does not prevent the target from participating in projects and/or carrying out activities of strategic relevance for the national interests subsequent to the transaction; (iii) ensuring that the target continues performing activities of strategic relevance for the national interest subsequent to the acquisition.

As for the 5G sector, at the end of the screening the government may: (i) approve the Plan unconditionally; (ii) approve, in whole or in part, the Plan for a certain timeframe, providing a term for the replacement of certain assets or services; (iii) approve the Plan conditionally, i.e., imposing conditions and prescriptions aimed at ensuring the protection of the national defence and security interests; or (iv) veto the Plan.

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

Transactions covered by the Decree 21/2012 may fall within the scope of merger control under Italian Antitrust Law (Law No. 287 of 1990) or under the EU Merger Regulation (Regulation No. 139/2004), provided that they meet the requirements set out therein.

The special powers described above must be exercised on the basis of the objective and non-discriminatory criteria envisaged by the Decree 21/2012.

In particular, the government may intervene only in the event of a threat of serious harm to certain fundamental national interests, such as national security and defense, public order, the safeguarding and operation of networks and facilities.

In this regard, the criteria the government is required to take into consideration include the following:

with particular reference to the defence and national security sectors, whether the economic, financial, technical and organizational capacity of the investor, as well as the proposed business plan, is likely to guarantee the regular continuance of the company’s activities, the security and continuity of supplies and the proper and timely execution of the existing contractual obligations towards the public administration;
with particular reference to the defence and national security sectors, whether the future corporate structure is likely to ensure: (i) the safeguarding of the national defense and security system; (ii) the security of information relating to military defense; (iii) the international interests of the State; (iv) the protection of the national territory, of critical strategic infrastructures and the national borders; (v) the safeguarding and operation of networks and facilities; and
with particular reference to the sectors under Article 4(1) of the FDI Regulation, whether the future corporate structure, also taking into consideration the financing modalities of the transaction and the economic, financial, technical and organizational capacity of the investor, is likely to ensure: (i) the security and the continuity of supplies; (ii) the maintenance, security and operability of the networks and the plants;
the existence of potential links between the investor and third countries that do not recognize democracy and the rule of law, do not observe international law or have adopted dangerous behaviors towards the international community and/or maintain relationships with criminal or terrorist organizations.

In carrying out this assessment, the government must also take into account the principles of proportionality and reasonableness.

In assessing acquisition by non-EU subject, the government is required to also take into consideration:

whether the purchaser is directly or indirectly controlled by the public administration, including state bodies or the armed forces, of an extra-EU country, or, in addition, by virtue of its ownership structure or of substantial financing;
whether the purchaser has already been involved in activities affecting security or public order in a EU member State;
whether there is a serious risk that the buyer engages in illegal or criminal activities.

In assessing transactions in the 5G technology sector the government is required to take into account elements indicating the presence of vulnerability factors that could compromise the integrity and security of the networks and data transiting through them, including those identified on the basis of the principles and guidelines developed at international level and by the European Union.

16. Judicial Review

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

Decisions adopted by the President of the Council of Ministers following the investment control procedure may be appealed before the Administrative Court of Rome (Tribunale Amministrativo Regionale del Lazio) within 60 days from the date of the notification or publication of the decision. The judicial review carried out by the Administrative Court of Rome does not extend to the substance of the matter, but it is limited to the legitimacy of the government’s decision.¹

Against the government’s decisions it is also possible to lodge an extraordinary appeal to the President of the Republic (Ricorso Straordinario al Presidente della Repubblica) within 120 days from the date of the notification or publication of the decision.

Foreign investors may also challenge the government’s decision before national courts if it is deemed to be contrary to EU law (with particular reference to the EU fundamental freedoms), in order to obtain the annulment of the infringing measure and/or compensation for the damages suffered in connection therewith.

¹The judgment of the Administrative Court of Rome may be challenged before the Consiglio di Stato (ie the administrative court of last instance).

17. Publication in Official Gazette or other

Annual Report by the Italian government to the Parliament on the golden power activities.

18. Relevant Examples of application

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

On the basis of publicly available information, it appears that

in 2020, the Italian government received 342 notifications. The Italian government exercised the power to veto transactions in two cases (one regarding the national defense and security sectors and one regarding the energy, transport, communications and FDI Regulation sectors) and the power to impose specific conditions in 40 cases (15 cases concerned the national defense and security sectors; 17 concerned the 5G sector and eight concerned the energy, transport, communications and FDI Regulation sectors);
in 2019, the Italian government received 83 notifications. The Italian government did not exercise the power to veto a transaction for any of the transactions notified in 2019; the Italian government imposed specific conditions in 14 cases;
in 2018, the Italian government received 46 notifications. The Italian government did not exercise the power to veto the transaction for any of the transactions notified in 2018; the Italian government imposed specific conditions in four cases;
in 2017, the Italian government has received 30 notifications. The Italian government has exercised the power to veto the transaction in one case and the power to impose specific conditions in 4 cases.

Please note that information concerning the screening procedures carried out in 2021 and 2022 has yet to be published

19. Stakeholders views on the Legal Framework

N/A

20. Interplay with the future EU Regulation

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

As mentioned above, DPCM 179/2020 identifies the goods and the relationships (strategic assets and activities) of national interest in the sectors provided for under Article 4, paragraph 1, of the Regulation (EU) No. 2019/452.

According to publicly available information, no further amendments to the Italian legal framework, so as to comply with the EU, are expected at this time.

21. Other relevant information

It should be mentioned that if the government vetoes the purchase of relevant equity interests, the purchaser is prevented from exercising voting rights and any other non-property rights attached to the acquired interests, and they must dispose of within one year.

In the event of non-compliance with the government’s decision, the related transactions are deemed null and void.

In case of breach of the notification duty, an administrative fine may be applied of an amount up to twice the value of the transaction and, in any case, not less than one per cent of the cumulative turnover achieved by the companies involved in the transaction in the last financial year for which financial statements have been approved. Furthermore, the government may undertake the process to exercise special powers, upon its own initiative (i.e. ex officio).

The Decree of the Council of Ministers No. 133 of August 1, 2022 has recently adopted a pre-notification system, according to which it is possible to ask the Presidency of the Council of Ministries for a preliminary decision on the applicability of the FDI regime to the proposed transaction.

As for the 5G sector, should the agreements and contracts subject to the notification duty be implemented before the term for the governmental review of Plan expires, the government may order the undertaking to – at its own expenses and within a precise term – reverse the implementation of the agreements or contracts concerned. An administrative fine may be applied if there is a delay in the performance of the order, up to one-twelfth of the 3% of the turnover achieved by the subject upon which the notification duty subsists for each month of delay. Upon the breach of the notification duty, the government may apply an administrative fine of an amount up to 3% of the turnover achieved by the subject upon which the notification duty subsists. The same administrative fine can be applied in case of breach of the conditions and prescriptions or the veto imposed by government. Any contracts signed in violation of the conditions imposed or the veto by the government, or in breach of the notification duty, are null and void. Furthermore, the government may order the undertaking to restore – at its own expense – the situation prior to the violation, within a precise term. An administrative fine may be applied in case of delay in the performance of such order (up to one-twelfth of the 3% the turnover achieved by the subject upon which the notification duty subsists for each month of delay).

Decree of the Council of Ministers No. 133 of August 1, 2022 introduced the pre-notification system. Based on the pre-notification system, prior to proceeding with the formal notification, the undertaking aiming to implement a transaction may submit to the Italian government a communication concerning the proposed transaction (the pre-notification communication) to receive a response from the Italian government stating that: (a) the proposed transaction does not fall within the scope of the FDI regime so it does not need to be notified; (b) the proposed transaction is likely to fall within the scope of the FDI regime so notification is required; or (c) the proposed transaction falls within the scope of the FDI regime but the conditions for the exercise of the “golden powers” are clearly not met.

It is also provided that in cases (b) and (c) above, at the end of the preliminary assessment on the authorization of the pre-notified transaction, the Italian government may issue recommendations to the undertaking.

With the pre-notification communication it is requested to provide all information and documents, insofar as they are available, required for the formal notification.

The Italian government is required to provided its response, resulting in one of the outcomes described above (outcomes (a), (b) or (c)), within 30 days from the pre-notification. If the Italian government does not issue a decision within the 30-day period starting from the pre-notification, the undertaking that has pre-notified the transaction must proceed with the formal notification within the ordinary terms set for the FDI notification.

Contacts: Alessandro Boso Caretta, Domenico Gullo and Massimo D'Andrea

Last updated June 2023