New Foreign Investment Screening Act

On 1 May 2021, the new Foreign Investment Screening Act will enter into effect, introducing tools to review direct investments from third countries for their implications for the Czech Republic’s security and internal order. The act may hinder the implementation of foreign investments in the Czech Republic (or the EU) if these are assessed by the relevant authorities as high-risk.

A foreign investor under this act is any entity that has made or intends to make an investment in the Czech Republic and does not have their domicile or registered office in the territory of the Czech Republic or the EU, or is directly or indirectly controlled by such an entity. Subject to review may be any investment exceeding the ‘effective control’ threshold, e.g. the control of at least 10% of voting rights or the foreign investor’s membership in the target corporation’s bodies. If these prerequisites are met, it is necessary to assess whether a screening by the state authorities is necessary to implement the investment.

For the purposes of the screening, the act distinguishes between two groups of investments. The first group includes defined areas that the act considers most sensitive with regard to the Czech Republic’s security or internal order; foreign investments in these areas cannot be made without prior authorisation by the state. These include certain activities involving military equipment, the operation of critical infrastructure (e.g. transmission or transport systems) or the management of information systems for critical infrastructure.

The second group includes investments in other areas of the economy that are capable of endangering the Czech Republic’s security or its internal or public order. This general definition must be interpreted by the investors themselves. For these investments, investors may submit a request for consultation with the Ministry of Industry and Trade, thereby gaining legal certainty that the ministry will not review the investment ex post, up to five years from the date of its completion, and possibly ban it.

Similar legislation is currently being adopted by all EU member states, in response to Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the EU. National legislations may vary for example in the definition of a foreign investor or, more precisely, in whom not to consider a foreign investor – whether EU entities or entities from the European Economic Area (Austria, for example, has taken this position).

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