On 1 June 2022, following the adoption of Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening foreign direct investments in the EU, the various Belgian competent governments concluded a draft cooperation agreement, ratified by all competent Belgian parliaments, which aims to introduce a foreign direct investment (FDI) screening mechanism in Belgium.
The FDI control mechanism, which entered into force on 1 July 2023, provides for a mechanism of 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.
The future screening mechanism has an impact on the acquisition process for foreign investors in Belgium. Like the obligation to notify projects of concentrations to the Belgian Competition Authority or the European Commission, 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.
The ISC has received up to 60 notifications in one year. In May 2024, only three cases were subject to in-depth screening procedures.
The present article will present the main features of the Belgian FDI control mechanism and the first lessons to be drawn since its entry into force, one year ago.
The ISC
Due to the overlap between federal competence (i.e. maintenance of public order and national security) and the competence of the federated entities (e.g. energy, medias, healthcare, etc.), the setting up of the FDI screening required a cooperation agreement between the federal government and the governments of all Regions and Communities.
Furthermore, to avoid fragmenting control, which could deter investors, the ISC carries out screening, acting as a one-stop shop and composed of representatives of the different Belgian governments depending on the sectors targeted by the investment and the localisation of the target company.
The ISC was set up rapidly and became effective in a short period of time.
Scope of application
The scheme imposes a prior notification obligation on the following conditions:
- an investor from a non-EU country (including Iceland, Switzerland, Norway and Liechtenstein);
- making a direct or indirect 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.
Up to now, the non-EU countries most affected by notifications have been the US, UK, Switzerland, India and Canada, which represent around 85% of notifications.
Belgian FDI screening also applies to internal restructuring. In fact, more than 20% of notifications under the FDI screening concern internal restructurings.
The Belgian FDI screening covers two categories of investment:
1. 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;
- technologies of strategic interest in the biotechnology sector, although 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. 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
- digital infrastructure.
Some sectors may be broad and difficult to interpretate in practice. There is no possibility for an informal ruling to ensure that the investment falls outside the scope. In case of doubt, the notification of the transaction is therefore recommended to avoid any risk of financial sanction.
In practice, the five most important sectors concerned by notifications are healthcare, data, digital infrastructure, electronic communications and energy.
Procedure before the ISC
If notification must be made for an investment, it cannot be made without the final approval of the ISC.
The procedures provided for by the cooperation agreement are as follows:
I. 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. In practice, the ISC secretariat is reactive and a file may be completed within days of the notification.
Once the secretariat has all the necessary documents to conduct the assessment, it will forward the file to the competent members of the ISC.
II. Assessment procedure
During the assessment procedure, 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, regions and communities.
At the end of this procedure, within 30 days of the complete notification, the ISC may either authorise the transaction or, where the transaction raises concerns, require the opening of the screening procedure to carry out a more detailed examination of the transaction. If no decision is taken within this period, the operation may be implemented.
Up to now, nearly 95% of the notified investments were cleared at the end of the assessment procedure.
III. Screening procedure
Any competent member of the ISC may request the opening of the screening procedure if a more in-depth risk analysis is justified. In May 2024, only three screening procedures had been launched for investment projects.
The theoretical duration of the screening procedure is 28 days. The procedure can be prolonged in case of submission of written observations by the parties, requests for information, a hearing, proposals of remedies, etc. Note that the target company may be involved in the screening procedure.
At the end of the procedure, the ISC will approve with or without remedies or block the transaction. The position of Belgian authorities is to impose remedies or block an investment project only in exceptional circumstances since they do not want to deter foreign investments.
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 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 EU considers foreign investment to be essential for economic growth, competitiveness, employment and innovation. There are, however, concerns about FDI, the most important of which is the takeover of strategic companies or national champions by foreign investors.
The European Commission is currently revising the Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening FDI in the EU. Its proposal for a new regulation foresees obligations on Member States to introduce national screening laws with mandatory filing requirements, proposes timeframes and generally extends the scope of the FDI mechanism. As part of the consultation process, CMS submitted comments to the proposal, which you can access here.
The Belgian FDI control mechanism has implemented this common project among Member States to protect the EU’s strategic interests and highly sensitive sectors. It should be noted that 22 EU Member States have already adopted similar mechanisms for FDI screening.
FDI screening has influenced mergers in Belgium since this new constraint must be taken into consideration before closing transactions. However, although the general scope of the control remains vague in some cases due to the broadness of the sectors concerned and the absence of publicity of ISC decisions or detailed guidelines, the overall process has been relatively smooth due to the reactivity and pragmatism of the ISC.
Since the scope of the cooperation agreement is broadly defined, a large number of foreign investments may be subject to the ISC’s notification obligation.
The CMS Expert Guide to Foreign Investment Screening, written by our team of experts across Europe, is your guide to FDI screening in key jurisdictions. It provides a comprehensive overview of the relevant national legislation, the scope of each national regime, the sectors aimed at, the highlights of the applicable procedure, the authorisation criteria and the potential risks of non-compliance.
