Since 1 March 2021, Slovakia had a limited FDI regime applicable only to critical infrastructure. However, right after it was adopted, the government started preparing comprehensive legislation that would apply not only to selected industries but to all foreign investments in general (in line with FDI regimes in other EU Member States). After many drafts and lengthy negotiations, this new regime was finally adopted in late November 2022.
Exactly two years since the applicability of the old FDI regime, the new regime will be in place as of 1 March 2023 and will also apply to deals signed before 1 March 2023 but not closed before this date.
Transactions subject to FDI screening
The notification obligation is triggered if a foreign investor, i.e. mainly a non-EU individual or entity, intends to carry out a direct or indirect investment in a Slovak target. An EU seated entity also qualifies as a foreign investor if it is controlled, financed or acts in concert with a non-EU individual or entity, a public authority of a third country or an entity with an equity participation of a third country.
Such an investment can be:
- the acquisition of a target's business (asset deal);
- the acquisition of a participation in a target (share deal), meaning at least 25 % shareholding/voting rights for a non-critical investment or 10 % for a critical investment;
- the increase of a participation in a target, the relevant thresholds being 50 % for a non-critical investment, and 20 %, 33 % or 50 % for a critical investment; or
- the acquisition of control over a target by other means (e.g. by controlling the composition of corporate bodies).
Interestingly, the law suggests that creation of a pledge can also qualify as a foreign investment if the pledge gives the pledgee (qualifying as a foreign investor) rights in relation to the business decisions of a target. Thus, in case of financing transactions (especially syndicate lending) it would be necessary to address the potential FDI implications.
Under the new law there will be three screening regimes:
- Compulsory screening – in the case of critical investments. A standstill obligation applies and FDI approval must be obtained before closing.
- Voluntary screening – for non-critical investments. At first there is only a consultation procedure. The notification must be submitted before closing but closing can take place even if the FDI proceedings have not finished yet.
- Ex officio screening – for all foreign investments where there is a reasonable presumption that it may threaten or disrupt security or public order in the Slovak Republic or security or public order in the European Union. Only within two years after closing (without time limit in case of critical investments).
Industries subject to compulsory screening
Based on the current list of so-called critical investments, compulsory screening will be required in case of an investment in a Slovak target:
- that owns, operates, manages or otherwise uses critical infrastructure (covering a wide range of areas from energy, transportation, healthcare, chemicals to IT);
- whose activities involve dual use items, military equipment, firearms or biotechnology;
- providing digital services – online marketplace, online search or cloud services;
- designated as the subject of an economic mobilisation;
- engaged in the manufacture, research or development of cryptographic devices or components;
- active in the media sector (with some exceptions);
- that is a content sharing platform;
- that publishes periodicals or operates a news web portal; or
- that acts as a news agency.
The above list is currently only indicative. The final list will be provided by secondary legislation to be adopted before 1 March 2023.
Investigative powers and potential sanctions
The FDI provides the authority broad investigative powers in relation to foreign investments. For instance, the authority will have the right to conduct dawn raids similar to those in competition law.
As for sanctions, monetary fines for non-compliance can be imposed up to the value of the transaction or up to 2 % of worldwide turnover (on group level), whichever is higher.
The new Slovak FDI regime will finally provide a comprehensive regime of FDI screening, albeit with a very short timeframe between adoption and effectiveness. This means that it will also catch transactions which were already signed and not closed yet.
In addition, the new law has raised various legal questions, mainly regarding the scope of transactions subject to compulsory screening, effects on financing transactions or the requirement to conduct an FDI screening in case of a shareholding increase. It will be interesting to see how this will be applied in practice.
By Michal Lucivjansky, Counsel, Maria Gabriella Manzone, Associate, Schoenherr