September 2020 - Following the adoption of Regulation (EU) 2019/452of the European Parliament and of the Council of 19 March 2019 on establishing a framework for the screening of foreign direct investments into the Union (the “Regulation”), the Czech government decided to regulate this area and to seek to pass a law on the screening of foreign investments. The Czech Ministry of Trade and Industry (the “Ministry”) has submitted a bill on the screening of foreign investments on the basis of which it will be possible to control and eventually ban certain foreign investments into Czech companies (the “Bill”).
The Bill was already approved by the Government on 8 April 2020 and at present it was submitted to the Czech Parliament, first to its Chamber of Deputies, where the second of three readings is currently ongoing, during which the Bill will be considered - this is not limited in time and during this period all deputies may submit amendments.
Passage of this Bill is still at relatively early stages, it is difficult to predict when it might actually come into force and become effective.
Applicability of the Bill
The Bill will apply to various foreign investments in the Czech Republic based on the cumulative fulfillment of the following key criteria: (i) the identity of the foreign investor, (ii) the nature of the foreign investment and (iii) the target area of the foreign investment.
Identity of the foreign investor - a foreign investor is a person stemming from outside of the European Union. Apart from any person (legal entity or natural person) who lacks a registered office / EU citizenship, a foreign investor also means a legal entity with its registered office in the EU in which a person (legal entity or natural person) with their registered office / citizenship outside the EU can exercise a direct or indirect decisive influence.
Nature of the foreign investment - the Bill operates on the premise that foreign investment means an asset value in any form that a foreign investor provides for the purpose of pursuing an economic activity in the Czech Republic and which enables the foreign investor to exercise effective control ( influence) over the exercise of that economic activity.
Target area of the foreign investment - the target area of the screening of foreign investment includes investments into companies in various sectors, chiefly critical infrastructure, including energy, transport, communications and financial infrastructure, but also data storage, other major ICT systems, artificial intelligence, robotics, nanotechnology and biotechnology, cyber security or nuclear technology and others.
In addition to the above, any foreign investment posing a potential threat to the security of the Czech Republic or its internal order can also be subject to the screening regardless if the above stated criteria are met.
The Bill contains a transitional provision under which the Ministry will not initiate proceedings to review foreign investments completed before the law comes into force. This means that the law should not affect any investments made by foreign investors before its entry into force. The date of completion of the foreign investment is to be the date of the conclusion of the agreement on foreign investment or the date of commencement of the business activity, whichever occurs later. Thus, under the current transitional provision, the Ministry (i) cannot retroactively review investments that were completed prior to the effectiveness of the law, provided that the respective business activity was already underway; however, (ii) investments that have been signed, but with no transactions yet having been completed,
The Ministry will be the body responsible for screening foreign investments and for deciding on the authorization of foreign investments. A screening process may be initiated by:
- an investor filing an application for authorization or initiating a voluntary consultation process; or
- by the Ministry on its own initiative ( ex officio ).
Opinion of relevant public authorities
After the initiation of the foreign investment screening proceedings, the Ministry will provide information obtained from the foreign investor and other findings together with a request for an opinion to other relevant public authorities, and also to the Czech National Bank, if applicable. The public authorities concerned can deliver a reasoned opinion.
If the relevant public authorities do not deliver an opinion, this is deemed as agreeing to the authorization of the foreign investment. Otherwise, the Ministry will submit the matter to the Government for consideration.
The Ministry also notifies the European Commission and other EU Member States about the opening of the foreign investment screening proceedings. According to the Regulation, the European Commission is entitled to provide an opinion on the respective investment and other EU Member States can provide comments.
Outcome of the screening process
The result of the foreign investment screening process is a decision of the Ministry. Ministry decisions could be divided in two groups based on the fact if such decision is conditioned by the Government resolution or not.
If the Ministry does not conclude that the investment represents a threat to the security of the Czech Republic or its internal or public order and no reasoned opinion of the relevant public authority is delivered, it will decide on the authorization of the investment.
In the event that serious concerns arise during the course of the screening, or if a reasoned opinion by the relevant public authority is delivered, the Ministry will hand over the case to the Government. Subsequently, the Government will adopt a resolution whether the given foreign investment may pose a threat to the security of the Czech Republic or internal or public order. On the basis of the Government resolution, the Ministry shall issue without undue delay a decision regarding the investment.
Given the initial state of the enactment process of the Bill and the current crisis situation with respect to the ongoing coronavirus pandemic, we are unable to reliably predict the timeframe for the Bill's passage into law. However, given that the coronavirus crisis may cause severe hardship to numerous Czech companies, it is also possible that the Government will seek to significantly accelerate the adoption of this law in order to ensure investment oversight and to preserve the integrity of the Czech economy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.