CN02 - Proposals for new FDI regimes in Belgium Ireland and the Netherlands

In guidance published in March 2020, the European Commission encouraged EU Member States without an existing foreign direct investment ("FDI") screening mechanism to implement one. Recently, Belgium, Ireland and the Netherlands have published proposals relating to new FDI screening regimes. 

Key takeaways

• The Belgian federal and regional governments have agreed on proposals for a new FDI screening regime which would apply to all non-EU companies wishing to invest in Belgium in certain strategic sectors.
• Ireland has published proposals for a new mandatory FDI screening regime. The regime has a low transaction value threshold of EUR 2 million and a comparatively long review period of up to 90 days.
• The Netherlands has passed the Investments, Mergers and Acquisitions Security Screening Bill which introduces a mandatory and suspensory national security regime, meaning it applies equally to Dutch and foreign investors.

In recent years, there has been a proliferation of FDI regimes worldwide. In March 2019, the EU enacted the EU Screening Regulation (Regulation (EU) 2019/452) which provides for a cooperation mechanism for screening FDI in EU Member States. The cooperation mechanism enables EU Member States and the European Commission to exchange information, provide comments and issue opinions on foreign investments.

In March 2020, the European Commission encouraged Member States without a (fully-fledged) screening mechanism to set up such a mechanism and, in the meantime, to use all other available options to address cases where a foreign investment would create a risk to security or public order in the EU. 

As of May 2022, 18 Member States had FDI screening mechanisms. Belgium, Ireland and the Netherlands are three of the most recent Member States to propose FDI screening regimes.

Belgium

In June 2022, the Belgian federal and regional governments agreed on a text for a cooperation agreement introducing a new screening regime for foreign direct investment into Belgium. 

The regime will put in place a one-stop-shop mechanism, with an Inter-federal Screening Committee ("ISC") in charge of reviewing future FDI notifications.

The new regime is expected to enter into force on 1 January 2023 and will principally affect investors from outside the EU. The regime will apply to investments that have not yet closed at the time the rules enter into force. 

Transactions caught

The regime will apply to investments in Belgian entities by foreign investors from outside the EU, where those investments could have an impact on national security, public order, or the strategic interests of the Belgian federated entities. 

A foreign investor is defined as:

• any natural person having his/her main residence outside the EU;
• any undertaking established outside the EU; or
• any undertaking whose ultimate beneficial owner's main residence is outside the EU.

The responsibility to obtain regulatory clearance prior to closing of the transaction lies with the investor.

General thresholds and sectors captured

The proposed notification requirement will apply to transactions that result in (direct or indirect) ownership of voting rights in an entity established in Belgium exceeding 25%, whose activities touch on:

• critical infrastructure (including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, sensitive facilities, and also the land and real estate crucial for such infrastructure);
• technologies and raw materials of essential importance for security, national defence or public order (including military equipment subject to multilateral and European export control regimes, dual use goods and technologies of strategic importance and related IP rights);
• supply of critical inputs (including energy or raw materials, and food security);
• access to and ability to control sensitive information, personal data;
• private security;
• freedom and pluralism of the media; and
• strategic technologies in the biotech sector (if the turnover of the target in the preceding financial year exceeded €25 million).

This list of activities is similar to that set out in the EU Screening Regulation.

A notification will also be required where a foreign investor directly or indirectly acquires 10% or more of the voting rights in a Belgian entity of which the turnover in the previous financial year exceeded EUR 100 million and with activities that involve:

• defence (including dual-use products);
• energy;
• cyber security; and
• electronic communications and digital infrastructure.

Three stage procedure 

• Pre-notification, with no fixed timetable.
• Phase I assessment, ending with the ISC's decision that the transaction is either authorised or requires further investigation (within 40 calendar days from the date of notification).
• Phase II screening, ending with the ISC's decision authorising the transaction (possibly with conditions) or refusing to authorise (no time line provided for as yet).

The ISC can also request additional information, thereby putting the review process on hold. Reportable transactions may not close until clearance is obtained.

Sanctions

The fine for failing to notify a transaction may amount to up to 30% of the investment value and an ex officio investigation can be opened up to two years after the implementation of the reportable transaction (five years if the parties acted in bad faith).

Ireland

The Irish government has introduced the country's first foreign investment screening regime in the Screening of Third Country Transactions Bill 2022 (the "Screening Bill"). The regime is expected to come into force in early 2023 but it will apply retroactively to any transactions completed in the 15 months prior to commencement of the regime.

Ireland is considered an attractive place for foreign companies to do business and Dublin has become a popular location for tech giants such as Google, Facebook, LinkedIn, Twitter and TikTok, all of which have chosen the city for their European Headquarters.  

The Screening Bill grants the Minister of Enterprise, Trade and Employment ("DETE") powers to review transactions that raise concerns regarding national security or public order. It further enables DETE to prohibit a transaction or to impose certain conditions, including divestment, behavioural, ring-fencing and compliance reporting obligations. 

Proposed regime

The regime will be mandatory, requiring parties to notify transactions that meet the following criteria: 

• A "third country" investor, meaning an investor from a non-EU/EFTA country.
• A transaction value of at least EUR 2 million.
• The transaction directly or indirectly relates to the matters referred to in the EU Screening Regulation. For example, critical infrastructure (including energy, transport, water, health and defence), critical technologies and dual use items (including artificial intelligence, robotics, cybersecurity and aerospace), supply of critical inputs and food security, access to sensitive information and the freedom and pluralism of the media.
• The transaction directly or indirectly relates to an asset or undertaking located in Ireland.

The regime captures the acquisition of minority stakes where the acquirer's percentage of shares or voting rights increases from 25% or less to more than 25%. Notification will also be required where the acquirer's holding increases from 50% or less to more than 50%. While DETE will have the power to call in transactions that are not notifiable, there is no process for submitting voluntary notifications. 

The notification must be made not less than ten days prior to completion. If the Minister commences a review, he/she will issue a screening notice to all parties as soon as practicable and will have 90 days (extendable to 135 days) from notification to make a screening decision. Where a screening notice is issued, the parties may not complete the transaction or take any steps towards integration until clearance is granted.

Persons found guilty of an offence under the Screening Bill may be liable to a fine of up to EUR 4 million and/or up to five years imprisonment. 

Netherlands

On 17 May 2022, the Dutch Senate adopted the Investments, Mergers and Acquisitions Security Screening Bill ("ISSB"), which will introduce a mandatory and suspensory review mechanism for investments that may affect Dutch national security. 

As the regime is focused on national security, the ISSB applies regardless of the acquirer's country of origin, meaning the regime will apply equally to Dutch investors and foreign investors. 

Proposed regime

The proposed regime captures undertakings that are:

• Vital suppliers that operate, manage or make available services, the continuity of which is vital to Dutch society.
• Operators of high tech campuses, meaning companies that manage areas in which a collection of companies is active and where public-private partnerships take place on technologies and applications that are of economic and strategic importance to the Netherlands.
• Active in sensitive technologies, including dual use products and military goods.

For acquisitions relating to "highly sensitive technology", the acquisition or increase of "significant influence" will trigger a notification requirement. For these purposes, significant influence means 10%, 20% and 25% of the voting rights, or the ability to appoint or dismiss one or more directors, and notification will be required for crossing each threshold. The government is currently consulting on secondary legislation which sets out the details of the technologies considered to be "highly sensitive". 

For other acquisitions, notification will be required where there is a change of control, assessed in the same way as under the EU Merger Regulation. 

The Minister will have eight weeks from receiving a notification to decide whether an assessment decision is required. If so, the Minister will have an additional eight weeks to reach such a decision. If further investigation is required, there is scope to extend these deadlines further.

While the ISSB is not expected to come into force until the end of 2022/early 2023, it will have retroactive effect as of 8 September 2020. This means that, once the regime is in force, the Minister will be able to call in transactions currently being concluded.

With thanks to Eloise Robson and Uliana Kovaleva of Ashurst for their contributions.