FDI Regulations – mandatory notification and screening of non-EU investments in Belgium – broader scope than you think!

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Just over a year after the entry into force of the Belgian Cooperation Agreement of 30 November 2022 establishing a foreign direct investment screening mechanism[1] , we see that in practice, too little attention is (still) being paid to the broad scope of those so-called Foreign Direct Investment (FDI) regulations. Under those regulations, certain transactions must be notified prior to their realisation. Involved parties or advisers are sometimes unaware of this and erroneously assume that the regulations in question only apply to “larger” transactions or those involving non-EU companies. However, this is without taking into account the broadly formulated scope of the Cooperation Agreement.

As a reminder: the Cooperation Agreement was concluded between the Belgian federal government and the various federated entities and created a screening mechanism that – formulated in general terms – allows control of non-EU investments in Belgium. The Cooperation Agreement aims to be able to identify and subject to certain conditions, incoming investment flows from outside the EU that are motivated by strategic and political objectives rather than economic motives, or even refuse them if they are considered risky, in order to safeguard the “public order, national security and strategic interests” of the parties to the Cooperation Agreement.

This objective translates concretely into the obligation to notify certain transactions to the Inter-Federal Screening Committee (“ISC“), so as to obtain approval for their realisation.

Which transactions must be notified to the ISC in accordance with the Belgian regulations[2]?

  1. Scope – who?

The Cooperation Agreement focuses on investments by a foreign investor.

As foreign investor is considered any natural person whose main residence is outside the EU, as well as any company incorporated under the law of a non-EU member state.

But even a European (e.g. a French, German, … or also a Belgian) company of which one of the ultimate beneficiaries (UBO) has a main residence outside the EU (e.g. (in)direct holder of more than 25% of the voting rights) is considered a foreign investor under the Cooperation Agreement. This dares to be overlooked. A good understanding of the (shareholder/group) structure of the company one is advising is therefore crucial.

  1. Scope – what?

As a foreign direct investment is understood under the Cooperation Agreement: any investment by a foreign investor aimed at establishing or maintaining a lasting relationship with a Belgian company. In addition to the purchase-sale of shares, e.g. a capital increase/subscription to new shares or a takeover of a branch is also considered an “investment”.

Not every foreign investment needs to be notified. The notification obligation applies specifically when the transaction consists of a foreign investment that results in, directly or indirectly:

  • the acquisition of at least 10% of the voting rights in a company in Belgium, ánd whose activities are related to the sectors of defence (including dual use products), energy, cyber security, electronic communication or digital infrastructures, ánd whose annual turnover in the previous financial year amounted to at least 100 million euro; or
  • the acquisition of at least 25% of the voting rights in a company in Belgium, ánd whose activities are related to one of the (very broadly defined) sectors as listed in the Cooperation Agreement, including for example:
    • vital infrastructures for transport, energy, water, health, media, electronic communications,…
    • technologies and raw materials essential for (health) safety, …
    • technologies of strategic importance and related IP such as artificial intelligence, robotics, …
    • supply of energy and raw materials, …
    • access to sensitive information, …
    • …, or
  • the acquisition of at least 25% of the voting rights in a company in Belgium, ánd whose activities are related to technologies of strategic importance in the biotechnology sector, ánd whose annual turnover in the previous financial year was at least 25 million euro.

At first sight, these thresholds regarding annual turnover and/or percentage of voting rights obviously place a considerable number of transactions outside the scope of the Cooperation Agreement. However, the Cooperation Agreement also targets a fourth, potentially much broader, category of transactions, namely those in which:

  • a foreign investor acquires, by way of investment or passively, control in a Belgian company (active in one of the aforementioned sectors) (without a required minimum annual turnover or certain percentage of voting rights). Control is defined as the possibility of exercising (directly or indirectly, in fact or in law) a decisive influence on the activities of the company through (x) ownership and use rights on (part of) the assets or (y) the composition, voting behaviour or decisions of the company’s bodies. The latter may include, e.g., certain approval and veto rights over management decisions (e.g., in a shareholders’ agreement), which are often common when an investor enters the company, no matter how small his stake.

Which specific obligations and procedure are the targeted transactions subject to?

A transaction falling within the scope of the Cooperation Agreement can only be implemented áfter its notification by the foreign investor to the ISC (through forms provided) and áfter obtaining approval for this transaction. Until then, implementation of the investment must be suspended.

In principle, the notification is done on the basis of the signed transaction documentation, but it can also be done on the basis of (quasi-final) draft documentation subject to the addition of a declaration by the parties of their intention to conclude the agreement that does not differ noticeably from the draft in any of the relevant respects. The notification requires the submission of detailed information on the investor, the Belgian company and the transaction.

In an initial phase of principally 30 days (“review procedure”) there will be an examination of whether there are indications that the investment has a potential impact on the public order, national security or strategic interests of the federal state or federated entities (extension of this term is possible in certain situations). In the absence of such indications, the transaction is approved and may be carried out. Otherwise, the second phase is initiated.

In a possible second phase (“screening procedure”), the transaction will be assessed more thoroughly against the objectives of the Cooperation Agreement (public order, national security, strategic interests). In principle, 28 days are envisaged for this phase, but given the many extension possibilities, this phase may become time-consuming. The final decision consists of approval of the transaction, non-approval or approval subject to a binding agreement on remedial measures (which can be very far-reaching, e.g. divestment of a branch or adjustment of approval or veto rights).

In case of non-compliance, the foreign investor risks an administrative fine of 10% to 30% of the amount of the investment.

Points of attention in the run-up to a transaction

It may be clear that parties or their advisers are recommended to investigate at an early stage of transaction discussions whether the investment will be a notifiable investment, taking into account the (possibly wider than prima facie expected) scope of application of the FDI regulations. This will allow timely preparation of the possible notification, and – given the processing time of the review procedure and any subsequent screening procedure – also take into account the potential impact on the timing of the transaction.

Further information on the scope of the Cooperation Agreement and the notification and screening procedure, including FAQs in the form of guidelines, can be consulted on the FPS Economy website à https://economie.fgov.be/nl/themas/handelsbeleid/interfederale (Dutch), or https://economie.fgov.be/fr/themes/politique-commerciale/comite-de-filtrage (French).

 

Kim Van Herck and Bert Vanderheiden, intui lawyers

kim.vanherck@intui.be and bert.vanderheiden@intui.be

[1] Based on European Regulation 2019/452 of 19 March 2019 establishing a foreign direct investment screening mechanism in the European Union.

[2] This blog post approaches FDI regulations purely from the perspective of Belgian law. Each EU member state has adopted its own FDI rules. A correct notification in Belgium (transaction falling within the scope of the Belgian Cooperation Agreement) does not relieve the foreign investor of any notification obligations in other EU countries (e.g. if the Belgian company carries out activities in certain other EU countries or has a subsidiary in another EU country).