New FDI legislation entered into force on 1 May 2021. It introduced a mandatory, suspensory, pre-closing notification obligation for acquisitions of "effective control" over companies active in the Czech Republic in industries deemed capable of threatening the security of the Czech Republic and internal or public order by parties resident outside the European Union, or whose ultimate controlling parent is resident outside the European Union.
Mandatory notifications can take the form of either (i) a mandatory FDI filing or (ii) a mandatory FDI consultation. If unclear whether a transaction constitutes a notifiable FDI, the foreign investor can make use of a consulting procedure.
Act No. 34/2021 Coll., on Foreign Investment Screening and Amendments to Related Legislation (the "Act"), which entered into force on 1 May 2021.EU FDI Screening Regulation (Regulation (EU) 2019/452), OJ L 79I , 21 March 2019
The notification obligation is triggered if a foreign investor,
i.e. a non-EU individual/entity, an individual/entity directly or indirectly controlled by a non-EU individual/entity, or a trustee of a trust fund provided that the person who set up the trust or who in any way actually exercises influence over the trust (i.e. the person appointed by or approved by the trustee) or in whose benefit the trust was established is a non-EU individual/ entity or an individual/entity directly or indirectly controlled by a non-EU individual/entity) intends to make an investment of any form with the aim of carrying out economic activity in the Czech Republic, which enables the exercise of an effective degree of control in a target undertaking active in an industry that is important in relation to the security of the Czech Republic or its internal or public order (sensitive sectors). An effective degree of control is to be understood as:
- acquisition of at least 10 % of voting rights or the possibility to exercise a corresponding influence in the target undertaking;
- membership in the target undertaking's corporate bodies;
- ownership of an asset through which the economic activity is performed;
- ability to gain access to information, systems or technologies that are deemed important in relation to the protection of security of the Czech Republic and internal or public
Sensitive sectors include:
- production, research, development, innovation or ensuring the lifecycle of military material;
- elements of critical infrastructure, such as energy, gas, heat and water management, food and agriculture, healthcare, transportation, communication and IT systems, financial markets, emergency services and public administration;
- administration of essential information or communication systems;
- development and production of dual-use products. Should the investment concern the media sector, the Act provides for a mandatory consultation if the target undertaking holds a licence for nationwide radio or television broadcasting or if the target undertaking is a publisher of periodicals with a minimum daily average of 100,000 printed copies in the last calendar year.
Foreign investments which do not fall within the above categories can be screened ex officio in case they are capable of threatening the security of the Czech Republic or internal or public order. Such ex officio investigations are possible up to five years after closing and under special circumstances even after this five-year period (circumvention of a filing obligation).
Process and timetable
Competent Authority: Ministry of Industry and Trade Mandatory filing requirement: Yes
Filing deadline: The foreign investment cannot be implemented prior to obtaining the approval.
Responsibility for filing: The foreign investor is responsible for obtaining the necessary approval.
Sanctions: Implementation ahead of local regulatory clearance is subject to administrative fines.
Length of the proceedings:
Consultation: 45 days (obligatory for media sector) Unconditional approval: 90 days (+30 days) Conditional approval / Rejection: > 90 days (+30 days)
By Jan Kupcik, Attorney at Law, Schoenherr