Foreign investment control in the Benelux – Belgium starts screening foreign investments

Timing

On 1 July 2023, the new Belgian FI screening regime entered into force. Deals signed as of that date are subject to a mandatory pre-closing notification to the Belgian Inter-federal Screening Commission (ISC).

Investor scope

The Belgian FI regime only screens investments by non-EU investors. Specifically, this means that the regime applies to natural persons that have their main residence outside the EU, companies that are established outside the EU, and companies where the main residence of the ultimate beneficial owner is outside the EU.

Target scope

The regime applies to direct or indirect acquisitions of voting rights in entities incorporated in Belgium that are active in one of the sensitive sectors targeted by the regime (Belgian strategic entities). Investments in a non-Belgian target may also trigger a filing if the target has a subsidiary in Belgium that qualifies as a Belgian strategic entity. 

Transaction scope

The Belgian regime is applicable to transactions that involve a foreign investor: (a) acquiring ‘control’ over a Belgian strategic entity (which, in line with EU merger control rules, involves the ability to exercise decisive influence over strategic decisions); and/or (b) acquiring voting rights (at least 10% or 25%, depending on the sector) in a Belgian strategic entity. There is no general exemption for internal restructurings.

The ‘control’ and ‘voting rights’ thresholds apply cumulatively, meaning that a new notification will be required for any new level of influence over a Belgian strategic entity. For example:

• A foreign investor that received ISC clearance for the acquisition of non-controlling voting rights (at least 10% or 25%, depending on the sector) in a Belgian strategic entity will need to obtain approval again when it acquires ‘control’ over the Belgian strategic entity. 
• If a foreign investor, that already owns 20% of the voting rights, acquires another 6% of the voting rights in a Belgian strategic entity, this additional investment may be notifiable as the threshold of 25% of voting rights has now been exceeded.
• A foreign investor that already owned 26% of the voting rights in a Belgian strategic entity before the entry into force of the Belgian FI regime will need to notify the acquisition of a further of 2% share of voting rights, given that no prior ISC clearance had been obtained for the initial acquisition.

Sector scope

The Belgian regime is based on three different types of notification thresholds, depending on the sector involved: 

• First, a filing is triggered for acquisitions of 25% or more of the voting rights in, and/or the acquisition of control over, Belgian entities whose activities involve:

• Critical infrastructure for energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive facilities, as well as the land and real estate crucial for the use of such infrastructure.
• Technologies and raw materials that are of essential importance to public health safety, defence and public security, military equipment subject to the “Common Military List” and national control, dual-use items, artificial intelligence, semiconductors, robotics, cybersecurity, aerospace, defence, energy storage and quantum- and nuclear technologies and nanotechnologies.
• Supply of critical inputs, including energy, raw materials and food security.
• Access to sensitive information (e.g. relating to Belgium’s defence and strategic interests), as well as personal data.
• Private security (e.g. monitoring and protection of persons and goods).
• Freedom and pluralism of the media (e.g. news outlets, broadcasting services, newspapers, etc.). 

There is no size or turnover threshold for these investments.

• Secondly, investors will need to notify acquisitions of 25% or more of the voting rights in, and/or the acquisition of control over, Belgian entities that: (a) are active in the biotech sector, and (b) have realised a turnover of ≥ EUR 25 million in the financial year preceding the investment.
• Thirdly, the regime covers acquisitions of 10% or more of the voting rights in, and/or the acquisition of control over, Belgian entities that: (a) are active in the energy, defence (including dual-use products), cybersecurity and electronic communication sectors, and (b) have realised a turnover of ≥ EUR 100 million in the preceding financial year.

The turnover thresholds relate to the global turnover of the Belgian undertaking.

Greenfield investments are in any case excluded from the scope of the screening regime. 

Process

The regime is mandatory and suspensory, meaning investors are obliged to obtain approval pre-closing for investments that fall within the scope of the regime.

Notifications for qualifying investments need to be submitted to the ISC, composed of nine representatives from the three Belgian governments (federal, regional and community authorities). The ISC is administratively supported by the Federal Ministry of Economic Affairs.

The review can involve two or three phases:

• Upon receipt of a notification, the ISC’s Secretariat will conduct a preliminary review and can submit requests for additional information to the parties. There is no statutory time limit for this preliminary phase, but it is expected that the ISC’s Secretariat will generally confirm that it considers a notification complete within a matter of days. This does not involve an actual pre-notification phase. 
• Phase I is an assessment phase lasting 30 calendar days, which begins once the notification is considered complete. During this phase, the ISC will conduct a high-level review of the investment. The duration of the review period can be impacted by the ISC asking for additional information, which stops the clock.
• If Phase I reveals potential risks to national security or Belgian strategic interests, an in-depth screening procedure (Phase II) will begin. This procedure will take at least 28 calendar days, but is likely to be extended (e.g. in in case of an oral hearing, remedies or exceptional circumstances relating to the complexity of the case). The ISC’s decision to open Phase II proceedings is not open for appeal. 

The legislative text also offers the possibility for the ISC to initiate ex officio investigations into transactions that it deems to fall under the scope of the regime. The ISC is not obliged to inform the companies concerned when it starts an investigation but it can suggest that the parties notify a transaction. Failure to do so (or failure to cooperate) could lead to the initiation of a formal notification procedure.

Because of the complicated government structure in Belgium, the review process may prove time-consuming and burdensome. Timing can also be impacted by the application of the EU FDI Screening Regulation, which allows co-ordinated actions on foreign investments across the EU (see our earlier blogpost for further details). This EU cooperation mechanism is only triggered if and when the ISC opens Phase II proceedings. The European Commission and other EU Member States have a 25-calendar day period to comment on the notification during Phase II. If they submit a request for additional information, the Phase II period is suspended until the European Commission or the Member State(s) seeking additional details have received the relevant information.

There is no filing fee to be paid to the ISC.

Remedies

To address identified risks, foreign investors can offer different types of remedies. The FI regime outlines the type of remedies that the government is likely to impose and/or accept. More specifically, the FI regime suggests a non-exhaustive list of 17 measures that members of the ISC can propose to the foreign investor to mitigate the expected impact of the foreign direct investment and enabling it to provide positive advice or issue a positive decision. Those measures include, for example, agreeing a code of conduct for the exchange of sensitive information, appointing one or more compliance officer(s) who will oversee dealing with sensitive information, appointing a separate supervisory board and periodic reporting or controls. Remedies discussions can only take place during the Phase II screening procedure and can suspend the procedure by up to 1 month, or longer upon agreement with the notifying parties. 

Enforcement

Investors may face fines of up to 10% or 30% of the part of the deal value that is attributable to the Belgian target entity if they provide incorrect or misleading information or fail to notify a reportable investment. The ISC can start investigations into completed deals up to two years after the implementation of the investment (extendable to five years in case of bad faith), which may lead to the transaction being overturned or exposed to remedies.

The downlow on risks for (foreign) investors

Though the impact of this screening regime is not to be underestimated, the Belgian government has stressed that it wants Belgium to remain an attractive destination for foreign investors. Although we expect the Belgian government to continue to take a liberal approach to foreign investments, it remains an inherently political process. As a result of the structure of the ISC (with different levels of government represented), different interests may come into play. Over time, the application of the FI screening mechanisms will provide more certainty and clarity about which deals are considered in scope of the Belgian regime and those that are liable to raise concerns.

We recommend that (non-EU) investors should prioritise addressing the following risks when planning their investments in Belgium:

• For each potential deal, conduct a filing and risk assessment to verify whether a Belgian FI filing is triggered and consider to what extent each investment may affect Belgian national security or strategic interests.
• Anticipate potential delays in the implementation of the deal if the target is active in a relevant sector in Belgium, and especially when Belgian national security or strategic interests are at stake.
• To avoid surprises later on, consider appropriate FI conditions precedent, risk allocation, co-operation mechanisms and strategy well before signing.