On 1 June 2022, a draft cooperation agreement was concluded between the Federal State and the various Belgian Regions and Communities in order to set up a screening mechanism for foreign direct investments.
From its entry into force, scheduled for 1 January 2023, non-European investors will have to notify an Interfederal Screening Committee of their investment projects in a Belgian company active in a highly sensitive sector or one likely to affect security, public order or the strategic interests of the Regions and Communities.
Three years after the adoption of Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening foreign direct investments in the European Union, on 1 June 2022 the various competent governments concluded a draft cooperation agreement which aims to introduce a foreign direct investment (“FDI”) screening mechanism in Belgium as of 1 January 2023.
The objective is to introduce a mechanism for mandatory ex-ante notification to an Interfederal Screening Committee (“ISC”) for investment projects envisaged by non-European investors in a Belgian company operating either in a highly sensitive sector or in a sector likely to affect security or public order.
Currently, in Belgium, only the Flemish Region has limited ex-post control of foreign investments in Flanders' strategic (semi-) public assets by virtue of the Decree of 7 December 2018.
The future control mechanism will have an impact on the acquisition process of foreign investors in Belgium. Like the obligation to notify the Belgian Competition Authority or the European Commission in advance of merger projects, this formality cannot be ignored, given the power conferred on the ISC and the sanctions that may be imposed in the event of non-compliance with the notification procedure.
It should be noted that the draft cooperation agreement, currently submitted to the legislation section of the Council of State, will be presented for ratification to the various parliaments before the end of this year and should enter into force on 1 January 2023.
Creation of the Interfederal Screening Committee
Due to the overlap between federal competences (maintenance of public order and national security) and the competences of the federated entities (e.g. the regional competence of investment promotion), a cooperation agreement has been reached by the federal government and the governments of all federated entities in order to organise the FDI screening process.
Furthermore, in order to avoid a fragmentation of control that could deter investors, the draft cooperation agreement provides that screening will be carried out by the ISC acting as a one-stop shop and composed of representatives of the different Belgian governments.
Scope of application
The draft cooperation agreement aims to impose a prior notification obligation on:
- an investor from a non-EU country
- making an investment above certain thresholds (representing 10% or 25% (depending on the activity) of the shares of an enterprise)
- in a Belgian company
- which operates either in a highly sensitive sector or in a sector likely to affect security or public order.
The draft cooperation agreement covers two categories of investments:
- Firstly, investments aimed at acquiring directly or indirectly 25% or more of the voting rights in a Belgian entity (irrespective of the size or turnover of the target company) active in the following sectors:
- critical infrastructure relating to energy, transport, water, health, electronic communications and digital infrastructure, media, data processing, aerospace, defence, electoral infrastructure, financial infrastructure, etc.;
- technologies or raw materials that are essential for public security, defence, public order, dual-use products and technologies of strategic importance (e.g. artificial intelligence, robotics, semiconductors and nuclear technology);
- the supply of basic goods related to food security, energy or raw materials;
- access to or control of sensitive information, including personal data;
- the private security sector;
- freedom and pluralism of the media; or
- technologies of strategic interest in the biotechnology sector*.
*Transactions in the biotechnology sector only fall within the scope of the screening mechanism if the turnover of the target in the financial year preceding the acquisition of 25% or more of the voting rights exceeds EUR 25 million.
- Secondly, investments aimed at acquiring directly or indirectly 10% or more of the voting rights in a Belgian entity with an annual turnover of at least EUR 100 million during the financial year preceding the acquisition of the voting rights and which is active in the following fields:
- defence (including dual-use goods);
- electronic communications; or
- digital infrastructure.
Procedure before the ISC
The draft cooperation agreement requires mandatory prior notification of investments to the ISC if the above thresholds are exceeded. In such cases, the investment falling within the scope of the draft cooperation agreement may not be made before the final approval of the ISC.
The procedures provided for in the draft cooperation agreement are as follows:
After the foreign investor has submitted the notification file, the ISC secretariat will check the completeness of the file and may, if necessary, request additional information. Once the secretariat has all the necessary documents to conduct the assessment, it will forward the file to the members of the ISC.
During the assessment procedure, the members of the ISC will examine whether the notified transaction could have an impact on national security, public order or the strategic interests of the Federal State, the Regions and the Communities.
At the end of this procedure, the ISC may either authorise the transaction or, where the transaction raises concerns, carry out a more detailed examination of the transaction.
The decision to clear the transaction or open an in-depth review must be taken within 40 days of receipt of the complete file by the ISC secretariat. If no decision is taken within this period, the operation may be implemented.
The purpose of the screening procedure is to deepen the risk analysis carried out in the individual assessment procedure by each of the competent members of the ISC.
The members of the ISC will have an initial period of 14 working days from the opening of the screening procedure to prepare and submit their opinion to the ministers they represent. However, where the transaction is complex, this period may be extended to allow the foreign investor to provide written comments, hold oral hearings and propose negotiations on commitment measures that would enable it to issue a positive opinion.
At the end of the procedure, the ISC will recommend that the relevant ministers either approve (with or without conditions) or block the transaction.
Upon receipt of the ISC's opinion, the ministers concerned will have a period of six calendar days to present their observations with regard to their respective competences and to render their decision on the envisaged operation.
The ISC will then have a further 14 calendar days to notify the final decision to the foreign investor, taking into account the various observations of the ministers concerned. In the event that the transaction falls within the competence of more than one federated entity, a unanimous decision will have to be taken to prohibit the foreign investment, without prejudice to the possibility for the federal minister to decide – within the framework of his competence – to prohibit the foreign investment.
If no decision is taken within the legal time limit, the transaction may proceed.
A foreign investor may appeal against a negative decision of the ISC to the Market Court in Brussels.
Assessment criteria: public order, national security and strategic interests
During the screening procedure, the ISC will examine whether or not the foreign investment will:
- undermine the continuity of the vital processes of the above-mentioned sectors, which, in the event of failure or disruption, would lead to serious societal disturbances and would constitute a threat to national security, strategic interests and the quality of life of the Belgian population;
- undermine the integrity or exclusivity of the knowledge and information associated with these vital processes and the highly sensitive technology required for this purpose; or
- create or foster strategic dependencies.
A foreign investor that fails to comply with the notification procedure will face administrative fines of up to 10% or 30% of the amount of the investment (depending on the nature of the violation).
Screening mechanism in Flanders
Since 1 January 2019, Flanders has had an FDI screening mechanism, which was set up by the Flemish Governance Decree (“Bestuursdecreet”).
In contrast to ex-ante screening, which will be implemented at federal level, the Flemish framework provides for an ex-post screening mechanism for foreign direct investments in Flemish government institutions. The Decree specifically targets companies that are controlled by the Flemish government or local authorities (including, for example, external government agencies under public law and Flemish investment companies) and certain institutions with legal personality that have been established for the specific purpose of meeting public interest needs.
The Flemish government may, under certain conditions, annul or declare inapplicable a legal act (e.g. a transfer of shares or the conclusion of a commercial contract) if, as a result of this act, a foreign company acquires control or decision-making power in a Flemish government institution, thereby threatening the strategic interests or strategic independence of the Flemish Region or the Flemish Community.
While this procedure has been envisaged for certain sensitive investments, it has never been applied.
The European Commission considers foreign investment to be essential for economic growth, competitiveness, employment and innovation in the EU. However, there are also concerns about foreign direct investment, the most important of which is the takeover of strategic companies or national champions by foreign investors.
On 26 March 2020, in the context of an economy weakened by the COVID-19 crisis, the European Commission alerted Member States to the risks associated with the takeover of European strategic assets by foreign parties. Aware that the public health crisis has exposed many companies to significant economic vulnerability, the Commission strongly encourages Member States to protect their security and economic sovereignty.
The draft cooperation agreement to regulate foreign direct investment in Belgium is therefore part of a common desire by Member States to protect the EU's strategic interests and highly sensitive sectors. It should be noted that eighteen EU Member States have already adopted similar mechanisms for FDI screening.
It is important to note that the FDI screening will have a significant influence on mergers in Belgium.
As the scope of the draft cooperation agreement is broadly defined, a large number of foreign investments will be subject to the obligation to notify the ISC. Indeed, the financing of a company active in the sectors considered sensitive may, regardless of its turnover, fall under the control of the ISC.
Like merger control, FDI screening by the ISC will have the effect of lengthening the merger process in Belgium. However, transactions completed before the entry into force of the cooperation agreement are exempt from notification.
In addition, the Commission tabled on 5 May 2021 a new draft regulation to tackle the distortions caused by foreign subsidies within the single market. Indeed, subsidies granted by foreign governments are currently subject to almost no control, whereas subsidies granted by Member States are subject to scrutiny under EU state aid rules.
Junior Associate, Brussels