As from 1 July 2023, non-European investors will have to notify an Interfederal Screening Committee of their investment projects in a Belgian company active in a highly sensitive sector or one likely to affect security, public order or the strategic interests of the Belgian State, Regions and Communities.
Three years after the adoption of Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening foreign direct investments in the European Union, on 1 June 2022 the various Belgian competent governments concluded a draft cooperation agreement which aims to introduce a foreign direct investment (“FDI”) screening mechanism in Belgium. Now that all the competent parliaments have ratified the cooperation agreement, the new control mechanism will become effective as of 1 July 2023. Draft guidelines were published on 31 May 2023 to clarify certain aspects of the procedure.
The objective is to introduce a mechanism for mandatory ex ante notification to an Interfederal Screening Committee (“ISC”) for investment projects envisaged by non-European investors in a Belgian company operating either in a highly sensitive sector or in a sector likely to affect security or public order.
Until now in Belgium, only the Flemish Region has limited ex post control of foreign investments in Flanders’ strategic (semi-) public assets by virtue of the Decree of 7 December 2018.
The future screening mechanism will have an impact on the acquisition process for foreign investors in Belgium. Like the obligation to notify the Belgian Competition Authority or the European Commission in advance of merger projects, this formal procedure cannot be ignored, given the power conferred on the ISC and the sanctions that may be imposed in the event of non-compliance with the notification procedure.
Creation of the ISC
Due to the overlap between federal competences (maintenance of public order and national security) and the competences of the federated entities (e.g. the regional competence of investment promotion), a cooperation agreement had to be concluded by the federal government and the governments of all Regions and Communities in order to implement the FDI screening process.
Furthermore, to avoid fragmenting control, which could deter investors, the screening will be carried out by the ISC acting as a one-stop shop and composed of representatives of the different Belgian governments.
Scope of application
The new scheme imposes a prior notification obligation on:
- an investor from a non-EU country (including Iceland, Switzerland, Norway and Liechtenstein);
- making an investment above certain thresholds (representing 10% or 25% (depending on the activity) of the shares of an enterprise);
- in a Belgian company;
- which operates either in a highly sensitive sector or in a sector likely to affect security or public order.
Only existing investments are aimed to by the FDI screening process. Greenfields investments fall outside its scope.
It covers two categories of investment:
1. Firstly, investments aimed at acquiring directly or indirectly 25% or more of the voting rights in a Belgian entity (irrespective of the size or turnover of the target company) active in the following sectors:
- critical infrastructure relating to energy, transport, water, health, electronic communications and digital infrastructure, media, data processing, aerospace, defence, electoral infrastructure, financial infrastructure, etc.;
- technologies or raw materials that are essential for public security, defence, public order, dual-use products and technologies of strategic importance (e.g. artificial intelligence, robotics, semiconductors and nuclear technology);
- the supply of basic goods related to food security, energy or raw materials;
- access to or control of sensitive information, including personal data;
- the private security sector;
- freedom and pluralism of the media; or
- technologies of strategic interest in the biotechnology sector*.
*Transactions in the biotechnology sector only fall within the scope of the screening mechanism if the turnover of the target in the financial year preceding the acquisition of 25% or more of the voting rights exceeds EUR 25 million.
2. Secondly, investments aimed at acquiring directly or indirectly 10% or more of the voting rights in a Belgian entity with an annual turnover of at least EUR 100 million during the financial year preceding the acquisition of the voting rights and which is active in the following fields:
- defence (including dual-use goods);
- energy;
- cybersecurity;
- electronic communications; or
- digital infrastructure.
Procedure before the ISC
If an investment has to be notified, it cannot be made without the final approval of the ISC.
No costs are imposed by the ISC for the notification process.
The procedures provided for by the cooperation agreement are as follows:
- Preliminary procedure
After the foreign investor has submitted the notification file, the ISC secretariat will ensure that the file is complete and may, if necessary, request additional information. Once the secretariat has all the necessary documents to conduct the assessment, it will forward the file to the members of the ISC.
II. Assessment procedure
During the assessment procedure, the members of the ISC will examine whether the notified transaction could have an impact on national security, public order or the strategic interests of the Federal State, the Regions and the Communities.
At the end of this procedure, the ISC may either authorise the transaction or, where the transaction raises concerns, carry out a more detailed examination of the transaction.
The decision to clear the transaction or open an in-depth review must be taken within 40 days of receipt of the complete file by the ISC secretariat. If no decision is taken within this period, the operation may be implemented.
III. Screening procedure
If a more in-depth risk analysis needs to be carried out in the individual assessment procedure by each of the competent members of the ISC, they will have an initial period of 14 working days from the opening of the screening procedure to prepare and submit their opinion to the ministers they represent. However, where the transaction is complex, this period may be extended to allow the foreign investor to provide written comments, hold oral hearings and propose negotiations on commitment measures that would enable the ISC to issue a positive opinion.
At the end of the procedure, the ISC will recommend that the relevant ministers either approve (with or without conditions) or block the transaction.
Upon receipt of the ISC’s opinion, the ministers concerned will have a period of six calendar days to present their observations with regard to their respective competences and to render their decision on the proposed operation.
The ISC will then have a further 14 calendar days to notify the final decision to the foreign investor, taking into account the various observations of the ministers concerned. In the event that the transaction falls within the competence of more than one federated entity, a unanimous decision will be required for prohibiting the foreign investment, without prejudice to the possibility for the federal minister to decide – within the framework of his competence – to prohibit the foreign investment.
If no decision is taken within the legal time limit, the transaction may proceed.
A foreign investor may appeal to the Market Court in Brussels against a negative decision of the ISC.
Assessment criteria: public order, national security and strategic interests
During the screening procedure, the ISC will examine whether or not the foreign investment will:
- undermine the continuity of the vital processes of the above-mentioned sectors and whether failure or disruption would lead to serious societal disturbances and constitute a threat to national security, strategic interests and the quality of life of the Belgian population;
- undermine the integrity or exclusivity of the knowledge and information associated with these vital processes and the highly sensitive technology required for this purpose; or
- create or foster strategic dependencies.
Sanctions
A foreign investor that fails to comply with the notification procedure will face administrative fines of up to 10% or 30% of the amount of the investment (depending on the nature of the violation).
Conclusion
The European Commission considers foreign investment to be essential for economic growth, competitiveness, employment and innovation in the EU. However, there are also concerns about foreign direct investment, the most important of which is the takeover of strategic companies or national champions by foreign investors.
On 26 March 2020, in the context of an economy weakened by the COVID-19 crisis, the European Commission alerted Member States to the risks associated with the takeover of European strategic assets by foreign parties. Aware that the public health crisis has exposed many companies to significant economic vulnerability, the Commission strongly encourages Member States to protect their security and economic sovereignty.
The new Belgian FDI control mechanism implements this common project of Member States to protect the EU’s strategic interests and highly sensitive sectors. It should be noted that 18 EU Member States have already adopted similar mechanisms for FDI screening.
It is important to note that FDI screening will have an influence on mergers in Belgium.
As the scope of the cooperation agreement is broadly defined, a large number of foreign investments may be subject to the obligation to notify the ISC. Indeed, financing a company active in the sectors considered sensitive may, regardless of its turnover, fall under the control of the ISC.
Like merger control, FDI screening by the ISC will have the effect of lengthening the merger process in Belgium. However, transactions completed before the entry into force of the cooperation agreement are exempt from notification.
Annabelle Lepièce
