The Belgian Foreign Direct Investment (FDI) screening mechanism came into force on 1 July 2023 and carries out government screening prior to inward foreign investment in sensitive sectors.
The Inter-Federal Screening Commission (the “Screening Commission”) was set up to carry out these preliminary checks. The Screening Commission must be notified of any transactions that fall within its scope prior to the transfer of shares. Furthermore, a standstill obligation applies, which means that the transaction may only be completed after confirmation either that extensive screening is not necessary or that the transaction has been approved.
Which transactions are covered?
The FDI screening mechanism does not automatically apply to every foreign investment. The notification obligation specifically applies when a “foreign investor” is involved in the transaction. A “foreign investor” means:
- a natural person whose main residence is outside the EU, or
- a company incorporated outside the EU, or
- a company whose Ultimate Beneficial Owner (UBO) has their main residence outside the EU.
Moreover, a notification is only required when the transaction results in the acquisition of “control”, or the ability to exercise a decisive influence on the strategic decisions of the Belgian company. Furthermore, the transaction must result in the acquisition of at least 10% or 25% (depending on the sector) in a strategic Belgian enterprise. An increase in an existing shareholding above these thresholds (e.g. from 20% to 25%) must also be reported. Mergers, acquisitions and classic capital increases may therefore all be subject to the FDI screening mechanism.
Which sectors does the FDI screening mechanism target?
The notification requirement depends both on the sector in which the Belgian company operates and on the amount of voting rights that will come into the hands of the foreign investor as a result of the investment.
Sectors where the threshold for notification is 10% of the voting rights include defence, energy, cybersecurity, and electronic communication or digital infrastructure, provided the target company achieved a turnover of more than EUR 100 million in the previous financial year.
For vital infrastructures, such as energy, transport, water, health, media, and data processing or storage, etc., notification is required following the acquisition of 25% or more of the voting rights in a Belgian company, provided that the turnover in the financial year preceding the acquisition exceeded EUR 25 million.
How does the procedure work?
The notification requirement applies to foreign investors who fall within the scope of the mechanism; they must report to the Screening Commission. The procedure consists of three phases.
Notification phase
Notification of investments that fall within the scope of the mechanism must be made after signature but before closure of the deal. The report should include information about the foreign investor, such as ownership structure, target company, estimated value, the financing of the investment and the sector or activities of the target company. After completion of the notification, the secretariat of the Screening Commission will send the foreign investor an acknowledgement of receipt and start the second phase, the review procedure.
Review procedure
A period of 30 calendar days from receipt of a full report is foreseen for the review procedure.
If the assessment shows that the transaction does not pose a threat to public order, national security or strategic interests, the procedure will be closed. If the Screening Commission considers that the transaction potentially poses such risks, the screening phase will follow.
Screening phase
In this phase, the Screening Commission carries out a thorough risk assessment of the proposed investment and draws up a draft opinion. In the case of a negative opinion, the foreign investor is entitled to see the file and the draft opinion and is given ten days to submit written comments.
The Screening Commission may finally (i) approve the transaction, (ii) approve the transaction with remedies, or (iii) reject the transaction. The foreign investor is entitled to negotiate remedies with the Screening Commission. The final decision can be challenged at the Market Court in Brussels within 30 days of notification.
Sanctions and fines for non-compliance
The Screening Commission has considerable ex officio powers to assess transactions that have not been formally notified. This power extends up to two years after the acquisition, or even five years in cases of demonstrable bad faith. Fines of up to 10% to 30% of the transaction value can be imposed for breach of the notification and/or standstill obligation.
Conclusion
Extra vigilance is required if you operate in a sector covered by the FDI screening mechanism, especially if you are considering attracting new investors or if existing foreign investors want to increase their shareholding.
During the negotiations, it may be useful to include a suspensive condition of approval of the transaction by the Screening Commission, before sharing all the company information with the potential investor.
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This article was written by Azeddine El Bastani.