ARE YOU CONSIDERING FOREIGN INVESTMENT IN SLOVAKIA? BE PREPARED FOR INCREASED SCRUTINY AND SCREENING REQUIREMENTS THAT WILL APPLY FROM 1 MARCH 2023. FINES FOR NON-COMPLIANCE CAN BE SUBSTANTIAL
Slovakia follows a growing trend among EU Member States towards screening and restricting foreign direct investment into their countries with a view to safeguard security and public order. The EU legal framework for screening of foreign direct investment and cooperation among EU Member States and with European Commission was introduced in 2019 by the Regulation 2019/452 of the European Parliament and of the Council on establishing a framework for the screening of foreign direct investments into the Union. A Slovak act on screening of foreign investments has been approved by the National Council of the Slovak Republic on 29 November 2022 and will enter into force on 1 March 2023.
Which foreign investment is covered?
A foreign investment contemplated or completed by a foreign investor provided that it allows:
- direct or indirect change in ownership of a person with its registered seat in the Slovak Republic, which exists or is to be incorporated in connection with such foreign investment (Slovak target undertaking),
- effective participation or increase in the effective participation in a Slovak target undertaking,
- to acquire control over a Slovak target undertaking; or
- to acquire ownership title or other rights to key assets of a Slovak target undertaking, provided such foreign investment is a critical foreign investment.
Effective participation means a participation of at least 10% of registered capital or voting rights in Slovak target undertaking in case of a critical foreign investment and 25% of registered capital or voting rights in Slovak target undertaking in case of other foreign investments.
Increase of effective participation means an increase of registered capital or voting rights in Slovak target undertaking to 20% (and whenever it reaches 33% or 50%) in case of a critical foreign investment and to at least 50% in case of other foreign investments.
Critical foreign investment is a foreign investment where there is a risk, that such investment can negatively affect security or public order of the Slovak Republic. The Government of the Slovak Republic (Government) must, before 1 March 2023, issue a decree containing a list of critical foreign investment. According to a proposal of such decree, the list currently includes investments in Slovak target undertakings that:
- own, operate, manage or use critical infrastructure;
- manufacture, research, develop or maintain military technologies, military material or dual use products;
- manufacture, research or develop biotechnology products;
- provide digital services;
- produce, research, develop cryptographic components;
- operate platforms for content sharing, if annual turnover of the Slovak target undertaking exceeds 2 million euros; or
- publish periodical publications, operate media, news agencies or news websites.
Who is a foreign investor?
A foreign investor is a person who (i) is not a citizen of the Slovak Republic or other EU Member State or (ii) does not have its registered seat in the Slovak Republic or other EU Member State.
A citizen of the Slovak Republic or other EU Member State or person with registered seat in the Slovak Republic or other EU Member State, whose investment is financed by public authorities of a third country or by entity with ownership of a third country may also be deemed as a foreign investor.
What is the procedure?
In case of critical foreign investment, a foreign investor must apply to the Ministry of Economy of Slovak Republic (Ministry) for prior screening approval of such investment before the investment is completed.
In case of other foreign investments, foreign investor may (but is not obliged to) apply to Ministry for the screening approval before the foreign investment is completed. However, the Ministry may scrutinize such foreign investment ex officio as well.
During the procedure, the Ministry will assess the risks of negative effects of the foreign investment on security and public order and also consult with police, intelligence agency and other relevant agencies about their opinions on the foreign investment.
At the end of the procedure, the Ministry must either grant its approval to foreign investments or present its statement about the negative effects of the foreign investment to the Government. If the Government approves the statement, the Ministry must prohibit the foreign investment.
The Ministry will have extensive investigative powers to scrutinize foreign investments, including a right to conduct dawn raids, similar to those conducted by competition authorities and powers to impose severe fines. In case of non-compliance, a foreign investor can be fined up to 2% of (i) its worldwide turnover or (ii) the value of its foreign investment, whichever is higher.
This publication does not necessarily cover every important topic nor covers all aspects of the topic covered. This publication is not legal advice.