As of 1 July 2023 Belgium’s foreign direct investment (FDI) screening mechanism has entered into force. The screening mechanism is important for all M&A deals occurring in Belgium whereby foreign investors invest in Belgian entities involved in certain sectors. Transactions which fall under the scope of FDI are required to notify the Belgian Interfederal Screening Commission (ISC) prior to closing.

Transactions under the scope of FDI

Foreign investor – the screening mechanism is only applicable when a foreign investor is involved. Under the Belgian screening mechanism a foreign investor is understood as:

I. any natural person having its main residence in a non-EU country;

II. a company or association incorporated under the law of a non-EU country or otherwise organized where the registered office of the company or association or its main activity is located in a country outside the EU;

III. a company or association whose ultimate beneficial owners (UBO) have their main residence in non-EU country (e.g. a Belgian company with a shareholder who holds more than 25% of the shares and whose main residence is in the US/UK/China/Canada, etc. will be considered a foreign investor);

IV. the above includes governments, government institutions and state-owned or public law companies.

This entails that investments by EU citizens or EU entities do not fall within the scope of the Belgian FDI regime, unless they have their main residence or UBO outside the EU.

It is important to note that the differentiating criterion is EU and not European Economic Area (EEA). This entails that investors from EFTA member states, such as Iceland, Liechtenstein, Norway and Switzerland are also considered to be foreign.

Transactions & Sectors – the Belgian FDI regime is applicable to transactions whereby the investment of the foreign investor reaches the following thresholds:

I. the direct or indirect acquisition of 25% or more of the voting rights in a Belgian company or association who is active in the following exhaustive list of sensitive sectors:

a. Critical infrastructure, both virtual and physical, relating to energy, transport, water, health, electronic communications, digital infrastructures, media, data processing or storage, aerospace and space and defence, electoral or financial infrastructure, sensitive installations, whether or not part of an existing business, as well as land and real estate that are critical to the use of such infrastructure;

b. Technology and raw materials critical to, among others, security, health safety, national defence, the maintenance of public order and technology of strategic importance (and related intellectual property) such as artificial intelligence, robotics semiconductors, cyber security, aerospace, defence, energy storage quantum and nuclear technologies, and nanotechnologies;

c. The provision of critical inputs including energy, raw materials or food security;

d. Access to or control of sensitive information, including personal data or the ability to control such information;

e. The private security sector;

f. Investments where the freedom and pluralism of the media is at stake;

g. Technologies of strategic importance in the biotechnology sector, if the turnover of the company concerned exceeds 25 million EUR in the financial year prior to the acquisition.

II. the direct or indirect acquisition of 10% or more of the voting rights in a Belgian company or association whose activities relate to the sectors of defence, including products for dual-use, energy, cyber security electronic communication or digital infrastructures, and whose annual turnover in the financial year prior to the acquisition exceeded 100 million EUR.

III. Regardless of the acquired voting rights, the transaction is subject to review if the foreign investor acquires control over a Belgian entity (control entails the ability to exercise decisive influence over strategic decisions) which is active in one of the above (under I. and II.) mentioned sensitive sectors.

In practice – when asking the question whether or not the Belgian FDI screening mechanism is applicable the following must be taken into account:

I. The screening mechanism is triggered when the 25% of 10% thresholds are (in)directly reached. E.g. a transaction is subject to screening when the foreign investor – who already owns 24% of the voting rights – acquires an additional 1%.

II. Intra-group transactions fall within the scope of the FDI screening, even when the restructuring results in the same non-EU company/UBO controlling the company.

III. If a company’s activities fall under both the 10% and 25% threshold, the 10% threshold is applicable.

IV. The screening mechanism is applicable when the foreign investor acquires control, irrespective of the number of acquired voting rights in the Belgian target entity (which is active in a sensitive sector).

V. If the foreign investor already controls the target, but due to an additional investment expands its control, the investment must be notified

VI. If the foreign investor acquires control through an additional acquisition after receiving ISC clearance following an acquisition of 10% or 25% of the voting rights, the investor must obtain approval again if the initial acquisition did not result in the acquisition of control.

VII. A foreign investor who already owns more than 10% or 25% of the voting rights prior to 1 July 2023 must only inform the ISC of the acquisition of any additional percentage in case this additional acquisition results in the acquisition of control.

VIII. Passive acquisition (e.g. obtaining 25% via cancellation of shares) is also within the scope.

IX. Indirect acquisitions fall in scope of FDI. E.g. a transfer of the shares of a French company to a UK company might fall in scope if this French company has a Belgian subsidiary who’s active in one of the sensitive sectors.

X. A ‘greenfield’ investment, whereby the investor wishes to create new economic activities instead of continuing the existing activities of the Belgian target entity, is excluded from the scope.

Screening process

When – The notification must be filed after the signing, but before the closing of the transaction. The filing of a draft-agreement is possible if the parties declare that the signed agreement will not significantly differ from the filed draft-agreement in all relevant aspects. The transaction documentation will thus need to set out in detail the timeline in terms of signing/closing, clauses on the FDI procedure and mutual cooperation between parties in this regard, condition(s) precedent, etc.

Phases – the screening process is divided in the following phases:

I. Preliminary phase: in this phase the secretariat of the ISC will review the submission and decide whether all the necessary information and documents have been provided or if additional information is required. When the submission is deemed complete and admissible, the secretariat will notify the parties and share the information with the ISC.

II. Assessment Phase: within a timeframe of 30 days as from the receipt of the complete notification, the ISC will review the proposed transaction. When the ISC requests additional information the 30-day time period will be suspended. This phase ends with (a) the authorization of the transaction or (b) the initiation of the screening phase.

III. Screening phase: if the proposed transaction is a potential risk to the public order, national security or strategic interest, the screening phase will be entered. After a thorough analysis of the information, potential hearings and additional information requests, the ISC will provide (a) a positive opinion, (b) a negative opinion or (c) a positive opinion subject to certain remedial measures. This phase has a 28 days’ timeframe, but the duration can be extended up to three additional months.

Ex officio investigations – The ISC may initiate a screening process on its own initiative if no notification was submitted. The ISC can initiate such an investigation up to two years after the acquisition (five years in the event of bad faith).

Appeal – The foreign investor can lodge an appeal with the Market Court against the final decision of the ISC or the imposed fines.

Sanctions

Investors who do not comply with the Belgian screening mechanism may incur administrative fines up to 10% (e.g. when incomplete information was provided) or 30% (e.g. when no notification was filed) of the investment value.

In case no notification was filed structural adjustments and remedial measures might be imposed up to two years after the acquisition. In case of indications of bad faith, this period is extended to five years. An example of such a structural adjustment is the obligation to conduct a divestment.

It is important to note that the obligation the file the complete and accurate notification lies with the foreign investor. Therefore, the burden of the potential sanctions lies with said foreign investor despite the fact the target (or the sellers) must provide the majority of the necessary information. As a consequence, it is important to include the necessary provisions in the transaction documents to mitigate the foreign investors risk in case of negligence of the target or sellers in this regard.

Timeline

After 1 July 2023 – the Belgian FDI screening mechanism is relevant for all acquisitions signed on or after 1 July 2023 that fall within its scope.

Before 1 July 2023 – however, acquisitions signed before 1 July 2023  can still become subject to the above mentioned ex officio investigations up to 2 years after the acquisition (or five years in the event of bad faith). Such investigation cannot annul the transaction, but might impose corrective measures.

Note that transaction documents signed before 1 July 2023 but substantially amended on or after 1 July 2023 result in the transaction falling in scope. Purely formal amendments or the correction of material errors will not lead to a notification duty.

Conclusion

The Belgian FDI screening mechanism will be a key focus point for a significant number of M&A deals in Belgium. During the negotiations and the transaction process parties will have to take into account the notification and the screening’s possible consequences. To name a few, the FDI screening will have consequences for the timeline (e.g. long stop date, split between signing and closing), risk allocation, the conditions precedents and (potential) signing to closing covenants. In addition the gathering of the required information and a smooth communication procedure with the ISC will be of the utmost importance.

EY Law can assist with guiding your business through this difficult process.

In case you have any questions, relating to the aforementioned or other topics, do not hesitate to reach out to us.

More information: Interfederale Screeningscommissie | FOD Economie (fgov.be)