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Within the EU, participation in foreign investment screening has, to-date, been voluntary, with the original 2019 Regulation merely requiring Member States to share details with the Commission of their FDI regimes, where applicable. However, the reforms recently proposed by the EU see a complete turnaround on this, and provide that all Member States must have a screening mechanism within 15 months of the reforms being enacted into law.
This change is not surprising, as the investment screening landscape has changed beyond recognition since 2019. Growing technology-based security threats, geopolitical shifts, and the breakdown of globalism - as well as a greater focus on onshoring supply chains and building domestic resilience in strategic industries - have all contributed to this trend.
Since 2021, the EC has repeatedly called on Member States to set up and enforce fully fledged FDI screening mechanisms, and now the vast majority (22 out of 27) of EU Member States have done so. The remaining five EU Member States - Ireland, Croatia, Cyprus, Greece, and Bulgaria - are working on enacting legislation, and the proposed EU reforms can be expected to apply further pressure on them to bring in screening mechanisms, too.
In this post, we consider what progress each of the outstanding 5 jurisdictions has made in enacting FI legislation, and when those regimes may come into force.
An Irish FI regime has been in the works for some time, and Ireland’s Department of Enterprise, Trade and Employment published draft guidelines on 16 February detailing how the government will enforce the Screening of Third Country Transactions Act. While the Department are yet to confirm an exact date for implementation, our current understanding is that this could occur by early September.
Under the law, investments in certain sectors valued at more than €2 million must be notified at least 10 days prior to completion. The relevant sectors include Irish critical physical and virtual infrastructure; key technologies and dual use items; supply of crucial inputs for energy, raw materials, and food security; access to sensitive information, including personal data; and media freedom and pluralism.
The guidance noted that the law has provided for a 90-day screening period, which can be extended by a further 45 days in “exceptional circumstances” and includes a stop-the-clock mechanism.
The Bulgarian Parliament has recently enacted a local screening regime – featuring a suspensory notification and clearance regime, based on low thresholds – that is expected to fully come into effect within the next 6 months.
The general threshold stands at EUR 2,000,000 or 10% of the capital of the respective target. However, for investors that have 5%+ governmental shareholders amongst their investors, filings may even be required below these thresholds with exemptions and a lighter touch approach being available for investors from the United States, the United Kingdom, Canada, Australia, New Zealand, Japan, South Korea, the United Arab Emirates and Saudi Arabia. The concept of applying some form of preferential treatment to certain jurisdictions is known from the “Five Eyes” (the intelligence alliance) but something that has not been adopted in the EU to date considering the potential conflict with WTO principles.
The new regime will cover investments (as well as expansions of existing investments) made directly by non-EU investors. However - anticipating some of the reforms recently announced by the EU – the new rules will also apply to investments made via an EU entity that is either controlled by non-EU entities / persons or acts on behalf of those entities / persons.
Finally, a catch-all regime will be introduced for Russian and Belarussian investors, as well as for investments related to the production of energy products from petroleum.
On 28 February 2024, the Croatian Parliament adopted a Plan for alignment of Croatian legislation with EU law, which includes a Foreign Direct Investment Control Act, expected to be adopted in the second quarter of 2024.
However, the draft FI Act has not yet been made available for consultation, nor is there any publicly available information on the expected date for its publication.
Despite having a number of legal and procedural mechanisms to regulate foreign investment in certain regulated sectors, Cyprus has no formalised mandatory FI regime.
An FI screening bill has been in the works for quite some time, with the Ministerial Cabinet having submitted a first draft to Parliament in September 2022. According to Cypriot press reports, a series of back-and-forth exchanges between Parliament and the competent Ministry for various amendments has taken place since then, with no clear end in sight as of today. A revised draft was expected to be introduced before Parliament in September 2023, but this was eventually postponed pending further legal review by the competent administrative agencies. No further updates are publicly available since this last episode, so Cypriot FI screening remains a waiting game at the time of this writing.
There is no general FI mechanism in Greece and no current indication that the Greek legislator is actively working on any relevant proposals. In the aftermath of a decade-long financial crisis, the Greek state has, on the contrary, been quite focused on attracting foreign investment, which explains the lack of scrutiny of foreign investors. At this stage, there are no public discussions on the introduction of an FI regime; and this has not changed following the EC’s proposals in January.
Meanwhile, however, other countries are expanding their existing regimes. Romania has recently widened the scope of its regime to include investments (including greenfield investments) by EU and Romanian investors, while also providing for a somehow faster clearance procedure for this category of investors. The updated regime now also catches investments which do not grant control but only “effective participation in the management of the target”. There is unfortunately no further guidance as to the exact scope of this provision, but it could include (among other things) the right to appoint board members or nominate individuals for management roles.
It remains to be seen how the already stretched authority will deal with the new influx of cases and how and whether the regime will be adapted to the legislative developments at EU level. It seems that the authority is already working on implementing rules to narrow down the scope of the regime in practice.
We will be publishing posts on each of the forthcoming regimes in due course. As always, watch this space!
21 March 2024
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