Foreign Investment Control

Approval Requirements For Foreign Corporate Investments

More and more countries are tightening regulations for foreign investors that intend to acquire stakes in companies. Lawyers from different countries describe the legal situation and shed light on the consequences for corporate investments. As further countries are going to follow, Digitorney Plus will update this article frequently.

In France, the government recently extended the authorization requirements for certain investments by foreign natural and legal persons due to Regulation No. 2020-1729 of December 28th 2020. This concerns direct or indirect crossing of the 10% threshold of the voting rights of a listed company operating in a ‘sensitive’ economic area pursuant to Article R. 151-3 of the French Monetary and Financial Code (code monétaire et financier) and comprises inter alia defense, information technology, health or food safety.

In the USA, acquisitions of companies may require the approval of the Committee on Foreign Investment in the U.S. (CFIUS). For many years, CFIUS has had jurisdiction to review the potential national security implications of any transaction that could result in foreign control over a U.S. business. The scope of application of CFIUS was substantially expanded through the passage of the Foreign Investment Risk Review Modernization Act (FIRRMA) in 2018 and its implementation by the U.S. Department of the Treasury in the first half of 2020.

In Germany, a sector-specific investment review applies to acquisitions of certain defense and IT security companies. With regard to other industries, the so-called “cross-sector investment review procedure” is applicable if an investor based outside the European Union/EFTA acquires directly or indirectly a stake in a German company of at least 10% (e.g. critical infrastructure, cloud computing services, healthcare/pharmaceuticals, sector-specific software for energy, water or IT/telecommunication suppliers, media companies with broad scope) and of at least 25% in all other cases. The investor applies for a certificate of non-objection from the Federal Ministry of Commerce which either provides the certificate within two months (in case of no reaction, the transaction is deemed approved) or

starts a review procedure which takes further four months upon submission of all requested documents. The Ministry can restrict or prohibit the acquisition if this presumably affects the public security in Germany or the European Union. The German Federal Government currently plans to decrease the threshold to 10% in general. In addition, the more intensive sector- specific investment review shall apply to further industries in future (e.g. artificial intelligence, robotics, autonomous driving and flying, semi-conductors, opto electronics, cyber security, aviation, nuclear technology and additive manufacturing incl. 3D printing). The government’s draft is currently under review and could come into force in the first year-half 2021.

Denmark is currently in the process of implementing combined mandatory and voluntary FDI screening/approval requirements for certain “sensitive” infrastructure etc. investments/assets. A draft proposal was presented late last year and is now going through a consultation phase before presenting the final proposal.

In the Czech Republic, following Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union, a Czech Act on screening of foreign investments has been adopted with the effects from 1 April 2021.Under this Act, certain foreign investments leading to effective control on performing of economic activity in the Czech Republic by, for instance, an acquisition of at least 10% of voting rights on a target entity, and made by foreign (non-EU) investors…

In Romania, a Government emergency ordinance with respect to foreign investments is currently pending approval. The ordinance aims to implement the provisions of the Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union. The ordinance provides the establishment of a national commission for the examination of FDIs formed by representatives of the government, presidential administration, ministries, secret services and the competition authority.

In Portugal, there are no restrictions or regulations concerning foreign investments in companies. However, Oortugal holds a Gold Visa Programme («Golden Visa»), which grants a special residence permit to foreigners, that can be obtained through investment in the national territory. On December, 22nd, 2020, legal authorities approved legislation that restricts and limits investment conditions pertaining to the Golden Visa Program. According to the press release, the Golden Visa program will be limited in the areas of Lisbon, Oporto, and along the coastal line.

In Poland, Regulations restricting foreign investments in sensitive sectors were introduced to Polish law as of 24 July 2020 as a part of so called 4th Anti-crisis shield legislation. Restrictions apply to investments made by individuals and entities not based in one of EU, EEA or OECD country, provided that such an investment would result in achieving of at least 20% share in the share capital or profit of the target or increase of the share already had in the target resulting in achieving of domination relationship.