On 1 July 2023, the Belgian Foreign Direct Investment or ‘FDI’ screening regime entered into force. This makes Belgium one of the last EU Member States to adopt legislation designed to protect its national security, public order and strategic interests from the impact of FDI.
M&A and investment transactions signed as of that date involving a non-EU investor might be subject to a mandatory pre-closing notification to the Interfederal Screening Commission (ISC).
Non-EU investors and Belgian targets
The FDI regime only screens investments by “foreign investors” in Belgian target companies (or other legal entities) with existing activities.
This means that the regime applies to (i) any natural person with primary residence outside of the EU, (ii) companies that are established outside the EU and (iii) companies where the main residence of the ultimate beneficial owner (‘UBO’) is outside the EU.
Intra-group restructurings are not exempted. However, investments aimed at setting up new economic activities without taking over existing activities are excluded from the scope.
M&A and investment transactions in sensitive sectors
The screening regime applies to M&A and investment transactions that result in control acquisitions or ownership of at least 25% (cumulative) of the voting rights in Belgian targets involved in certain sectors.
These sectors include vital infrastructure, essential security resources, critical inputs, the private security sector, media freedom and plurality, and strategic technologies in the biotechnology sector.
In general, Belgian entities with access to sensitive information and personal data or the ability to control such information are also covered. Needless to say that these criteria may affect a lot of different sectors and companies.
A threshold of 10% or more of the voting rights applies for Belgian entities that are active in the energy, defence, cybersecurity and electronic communication sectors and have realised a turnover of ≥ EUR 100 million in the preceding financial year.
Procedure
The FDI regime introduces a mandatory and suspensory ex-ante filing obligation to the Interfederal Screening Commission (ISC) for foreign investments meeting the above thresholds.
In principle, investments must be notified between signing and closing. However, draft agreements may also be notified provided that the parties expressly declare that they intend to conclude an agreement which does not differ substantially in all material respects from the draft agreement. The information to be provided includes, inter alia, the ownership structure of the foreign investor and the target, the approximate value of the foreign investment, the business activities of the foreign investor (group) and the target, and the financing of the investment, including its origin. Upon completion of the notification, the assessment phase starts.
The assessment phase has a foreseen term of 30 calendar days from the receipt of a complete notification. If no risk is identified or in case of failure to take a decision within the aforementioned term, the contemplated transaction can be implemented. If however risks to national security or Belgian strategic interests are identified, the ISC will initiate the screening phase of the process.
During the screening phase, a hearing may be organised, additional information may be requested, an extended deadline may be imposed in the event of complex screenings and other bodies may be requested to provide their opinion. Subsequently, the ISC will take its decision being either (i) a positive unconditional decision, (ii) a negative decision or (iii) a positive conditional decision (subject to certain risk mitigating measures).
For the screening phase, no fixed term is foreseen. The final decision taken can be appealed by the parties before the Market Court in Brussels.
Enforcement
In case of providing incorrect or misleading information or failing to notify a reportable investment, investors could be subject to fines of up to 10% or 30% of the portion of the deal value attributed to the Belgian legal entity.
The ISC can start investigations into completed deals up to two years after the implementation of the investment (extendable to five years in case of bad faith), which may lead to the transaction being overturned or exposed to remedies.
Conclusion
The new FDI screening mechanism could substantially affect the timeline of the transaction and, possibly, the deal certainty. Consequently, FDI screening must be taken into account right from the beginning for any planned transaction involving non-EU investors.
