Author: Josianne Cilia, Senior Corporate Administrator
3rd November 2020
On the 19th of March 2019, the European Parliament and Council introduced Regulation (EU) 2019/452 (the “Regulation”) for the screening of foreign direct investments into the Union. As from the 11th October 2020, this Regulation became also applicable to Malta.
Foreign Direct Investment (“FDIs”) screening differs between one country and another worldwide, and prior such introduction of this Regulation, the European Union (“EU”) did not have any regulations in place to monitor FDIs. The EU recognizes FDIs as an integral part of the economic growth and is in no way moving towards reducing FDIs. The scope of such Regulation is mainly to control such investments, and investigate where necessary, to ensure the EU’s security and public order.
The Regulation defines FDIs “as an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which, the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity” and it defines a foreign investor a “natural person of a third country or an undertaking of a third country intending to make or having made a foreign direct investment”.
Every EU Member State is allowed to implement its own tailor-made screening mechanisms while also taking consideration that such mechanisms are to be transparent and not discriminate in any way an investment coming from different third countries. The introduction of such screening mechanisms would allow each EU Member State to collaborate between them and with the European Commission.
In Malta, the local legislation has not yet been finalized, however the National Foreign Direct Investment Screening Office (the “Office”) has been set up and is fully operational from June 2020. The Office has worked together with the Institute of Financial Services Practitioners and the Malta Institute of Accountants, to draft a notification form which is to be completed in respect of FDI’s. Such application is to be filed with the Office prior submission of the Memorandum and Articles of Association and any other related documents to the Malta Business Registry.[1] The Office would be monitoring transactions including, but not limited to, transfer of shares and assets where the current or the new ultimate beneficial owner (“UBO”) is a third country national OR mergers and acquisitions of companies involving third countries or a UBO who is a third country national OR the incorporation of new entities by a UBO who is a third country national. The Office advises that the notification form is to be filled only:
- where the Ultimate Beneficial Owner, whether existing or new, is a ‘foreign investor’ (as defined in Article 2 of the EC Regulation 2019/452);
- the activity is one as described in Article 4 of the regulation cited below; and
- where the investment within the territory of Malta, is of a direct, tangible and long-lasting nature.[2]
Article 4 of the Regulation lists the factors that may be taken into consideration by Member States or the Commission. While determining whether a foreign direct investment is likely to affect security or public order, Member States and the Commission may consider its potential effects on, inter alia:
- critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
- critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;
- supply of critical inputs, including energy or raw materials, as well as food security;
- access to sensitive information, including personal data, or the ability to control such information; or
- the freedom and pluralism of the media.[3]
In addition to the above, the Member States and the Commission may also consider, in particular: –
- whether the foreign investor is directly or indirectly controlled by the government, including state bodies or armed forces, of a third country, including through ownership structure or significant funding;
- whether the foreign investor has already been involved in activities affecting security or public order in a Member State; or
- whether there is a serious risk that the foreign investor engages in illegal or criminal activities.[4]
Every Member States must submit an annual report to the commission by the 31st March of each year, which report would include the FDIs recorded in the reporting Member State and requests received from other Member States pursuant to Articles 6(6) and 7(5). The Member State must also report the screening mechanism they have implemented. On the other hand, the Commission shall provide an annual report on the implementation of this Regulation to the European Parliament and to the Council[5] which report shall be made public.
[1] https://ifsp.org.mt/news/government-sets-up-national-office-for-fdi-screening/
[2] http://applicationform.nfdismalta.com/
[3] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32019R0452&from=EN
[4] Ibid.
[5] Ibid.
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