15 July, 2020

Screening of foreign direct investment

As part of the third package of measures in connection with COVID-19 epidemic, which were adopted by the Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the COVID-19 Epidemic, the National Assembly also adopted rules on the screening of foreign direct investment (FDI). Although this measure has not received much public attention, it may be expected to have a significant impact on mergers and acquisitions, the formation of new companies, real estate transactions, etc. The provisions on the screening of FDI apply until 30 June 2023.

The screening of FDI covers investments of any foreign investor: accordingly, the screening is not limited to investments from third countries, but also includes investments of natural persons or legal entities from EU Member States. The Act covers any investment made by a foreign investor, the purpose of which is to establish or maintain permanent and direct links between a foreign investor and an economic entity with its registered office in the Republic of Slovenia. The notification threshold is set at the acquisition of at least 10% of the share capital or voting rights, and it can be expected that the screening (despite some ambiguities in the wording of the law) will not be limited to sales of shares or business stakes, but will cover a significantly wider range of foreign investments (eg, investment in tangible and intangible assets, which refers to significant changes in the entire production process of the existing business unit, as well as the acquisition of the right to dispose of land and real estate that are essential for, or located near, critical infrastructure).

Nevertheless, not every FDI is subject to screening, as the latter is limited to investments which pose a threat to the security and public order of the Republic of Slovenia. These include especially investments affecting critical infrastructure (including real estate “in the vicinity” of such infrastructure), critical technology and dual-use goods, supply of critical resources (eg energy, medical and protective equipment), access to sensitive information (including personal data), freedom and plurality of media and projects or programs in the interest of the European Union (eg Trans-European Networks for Energy). As it is very difficult to determine in practice which investments are subject to screening, and high fines are threatened for violations at the same time, it can be expected that many investments will be notified out of caution, ie, “just in case”.

The obligation to notify arises within 15 days from the conclusion of the relevant contract, the publication of the takeover bid or the incorporation of a company in the Republic of Slovenia. The notification to the Ministry of Economic Development and Technology must be made by either a foreign investor or a target or acquired company. The Ministry may approve, prohibit or cancel FDI, or determine the conditions for its implementation. The prohibition or cancellation results in the annulment of the transaction, whereas the failure to notify results in a  fine in the amount of up to EUR 500,000 for the legal entity and up to EUR 10,000 for the responsible person of the legal entity.

The Ministry must issue a decision within two months of notification, but if this deadline is not met, the transaction is not considered approved. The decision of the Ministry (or the lack thereof) may be appealed to the Government.

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