New obligations for the foreign investors on Screening of their Investments

On 29 November 2020, the Slovak Republic has adopted the Act No. 497/2022 Coll. on Screening of Foreign Investments (hereinafter as “SFI”). The SFI basically follows the framework set up by 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 European Union (hereinafter as “Regulation). The SFI came into force on 1 March 2023.  The SFI set conditions for screening of foreign investments in the area of foreign investors investing in the territory of the Slovak Republic. The purpose of the SFI is to protect the Slovak republic and EU from an investment that can harm the security or public order along with setting up a mechanism for cooperation between Slovak republic and another member states of the EU. 

In accordance with Sec. 69 of the SFI, screening of the (foreign) investments only applies on the investment that are realized after 1 March 2023 and does not apply on the (foreign) investments before this date. 

I. Foreign investors 

A foreign investor is, in general, considered as:

a) a person that is not a citizen of the Slovak Republic and/or the EU; or
b) an entity, whose registered seat or place of business is outside the Slovak republic and/or the EU. 

Provided that the entity has registered seat or place of business inside the Slovak Republic or the EU, but:

a) is controlled by a person from outside the Slovak Republic or the EU;
b) ultimate beneficial owner is from outside the Slovak Republic or the EU;  
c) financing of this investment is secured by the non-member state or by an entity, in which non-member state holds a share; and
d) act in mutual consent with a person or entity stated above;

shall be considered as foreign entity as well.

II. Foreign investments

In accordance with the Art. 2, Sec (1) of the EU Regulation, the foreign investment is an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity. 

In accordance with the Sec. 2 of the SFI The foreign investment is an investment intended or realized by a foreign investor, regardless of applicable laws, provided that the foreign investor will:

a) acquire a target company or its part;
b) execute effective participation in a target company; 
(i.e. at least 25%: participation on the registered capital; or of the voting rights);
c) increase effective participation in a target company;
(i.e. increase of the participation on the registered capital or voting rights in the amount of at least 50%, provided that critical investment shall be considered – 20%, otherwise  33% or 50%)
d) execute control of a target company; or
e) acquire ownership or any other right to substantial assets of a target company and this is a critical foreign investment. 

The foreign investment shall not be considered:

a) investments between related parties;
b) establishment of pledge; and
c) transactions in the ordinary course of business for the purposes of selling or buying goods, products or services. 

The SFI distinguishes the foreign investments into two categories:

  1. Critical investment – with type of this investment there is an increased risk of a negative impact on the security or public order of the Slovak Republic,
  2. Non-critical investment – other than critical investments, 

Whether an investment is critical or not is specified by the government´s regulation no. 61/2023 Coll. on specification of critical foreign investments. It is set that the critical investments are such as investments in the field of defence, digital services, or other elements of critical infrastructure, press agency and others specified in the regulation.

III. Screening the investments 

The screening of the investment is made on the basis of filing the request for screening the investment. Respective formulars are set up by the regulation of the Ministry of Economy of the Slovak Republic no. 64/2023 Coll. 

Obligation to file a request for the investment screening is mandatory only regarding the critical investment. It is not possible to make this type of an investment without authorization provided for the Investor by the Ministry of Economy of the Slovak Republic. 

For non-critical investment, the foreign investor has the option to file a request to screen their investment. In this case, if the Ministry of Economy of the Slovak Republic does not find a reason for the investment to be marked as a critical investment, the Ministry of Economy of the Slovak Republic will only send a confirmation and the process itself will be terminated and closed.

Except for the request for the screening of an investment by an investor, the Ministry of Economy of the Slovak Republic may also act upon its own discretion and initiate the screening of an investment by themselves, however not later than in the period of two years after the investment was made. 

IV. Result of the Screening 

The result of the screening is that the investment is approved, conditionally approved, or rejected. Ministry of Economy also makes inspection in order to determine compliance with legal obligations.

Provided that the investment is rejected (not approved), then an investor is not entitled to proceed with the investment. In the case that the investment is already made, then the Ministry of Economy of the Slovak Republic may order the investor to revert transaction. 

Further, the Ministry of Economy of the Slovak republic may order that a foreign investor:

a) is not entitled to exercise any rights; or
b) is restricted to exercise any rights;  

acquired based on foreign investment that (i) is in contrary to the decision of the Ministry of Economy of the Slovak republic or (ii) lacks required approval.  

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