Looking at the current geopolitical situation, questions on national security and resilience are never far off. Foreign investments can potentially raise concerns of national autonomy and self-sufficiency. Already in 2019, the EU adopted rules to answer this growing concern. However, Member State autonomy is still central in this context. Whether and to what extent foreign investments in Europe are taken under the loop, still largely depends on the Member States themselves. Meanwhile, a large number of Member States have implemented or amended their own screening rules on foreign investments, as an answer to the European initiative. On 1 June 2022, Belgium followed by publishing a proposal draft cooperation agreement that could have a significant impact on foreign investments in Belgium.
1. The EU FDI Framework: cooperation and transparency
Regulation 2019/452, commonly referred to as the FDI Regulation, came into force in all EU Member States on 11 October 2020. While not creating a harmonized screening mechanism as such, it is a first set of rules since the EU Merger Regulation that enables the European Commission to review private transactions in a general way.
With the FDI Regulation, the EU aims at enhancing cooperation, information sharing and transparency in FDI screening procedures. It does so by setting minimum screening requirements that Member States should implement autonomously, rather than by implementing a harmonized screening procedure directly applicable in all EU Member States.
The scope of the FDI Regulation is broad and covers the vast majority of investments by foreign (non-EU) investors aimed at establishing or maintaining lasting and direct links between the foreign investor and the target company to which the foreign investment is made available, including minority foreign investments which may result in the effective control over a company.
The cornerstone of the assessment of a foreign investment under the FDI Regulation is the potential risk of a certain investment to the “security and public order” of a Member State. As this principle is rather vague it leaves a considerable degree of discretion for the Member States to determine risks that likely have an impact on security and public order. Nevertheless, the EU has tried to harmonize the interpretation of the different Member States in this respect, by providing the Member States with a non-exhaustive list of relevant factors that can be relevant in determining whether a foreign investment is likely to affect security or public order, covering inter alia:
- critical infrastructure (incl. energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, as well as sensitive facilities and investments in land and real estate crucial for the use of such infrastructures);
- critical technologies and dual use items (incl. artificial intelligence, robotics, semiconductors, cybersecurity, quantum, aerospace, defense, energy storage, and nuclear technologies, nanotechnologies and biotechnologies);
- supply of critical inputs (including energy or raw materials, as well as food security);
- access to or the ability to control sensitive information (including personal data); and
- freedom and pluralism of the media.
Next to an indication of possible risk factors, the Regulation provides an extensive system of cooperation and inter-Member State communication. Member States are required to inform the European Commission and their fellow Member States about pending FDI screenings. Other Member States may issue comments and opinions on the ongoing screening within 35 calendar days. The European Commission may even issue a (non-binding) opinion within 40 calendar days of the notification by the Member State conducting the screening. From a practical point of view, however, increased cooperation might lead to delays in investment processes, which are to be considered when structuring and negotiating investment transactions.
2. Belgian implementation
As the FDI Regulation does not impose a harmonized EU screening procedure, Member States are to a large extent free to implement it as they see fit, provided certain minimum standards and reporting obligations in the implementation of their screening procedure are taken into account.
At the time of writing, 18 Member States have notified the Commission of their own screening mechanism. Belgium does not have a full-fledged screening mechanism yet. Currently, only Flanders has some sort of FDI-control, in the form of an ex-post emergency mechanism regarding strategic (semi-) public assets under the Decree of 7 December 2018 (“Bestuursdecreet”).
However, on 1 June 2022, a draft cooperation agreement on an FDI screening mechanism was concluded between the Belgian Federal State and all communities and regions that was originally scheduled to enter into force 1 January 2023. However, as at the time of writing the proposal still has to pass through parliament, entry into force in the first half of 2023 seems more realistic. From its entry into force onwards, non-EU investors that wish to make an investment above a certain threshold (10 or 25% of the shares depending on activity and/or turnover) in a Belgian company operating in a highly sensitive sector or one likely to affect security and public order, will have to notify said investment prior to its execution. An Interfederal Screening Committee (ISC) will be set up that will act as a one-stop shop to execute this ex-ante FDI screening.
The subsequent assessment procedure conducted by the ISC seems to be inspired by the EU Merger Regulation, as it also consists of two separate stages. After a preliminary screening by the ISC secretariat, a first assessment procedure by the ISC will assess a possible impact on national security, public order or strategic interests either national or regional. Within 40 days, the ISC must either decide to authorize the transaction or to carry out a more detailed examination. When there are concerns about the transaction, the ISC will thus initiate the second stage. This screening procedure consists of an in-depth risk analysis of the transaction. Within 14 calendar days, the ISC recommends to the relevant ministers to either block or (conditionally) approve the transaction. Internal discussions on competence and the decision itself may delay the procedure no more than 20 calendar days after the ISC recommendation to the relevant ministers.
Foreign investors that fail to comply with this new ex-ante mechanism can expect administrative fines of up to 30% of the invested amount, depending on the nature of the violation.
3. Consequences for foreign investors
This new FDI screening mechanism will have a significant impact on the Belgian investment scene in 2023 and beyond, as its scope of application is rather broad. Interestingly, this inter-federal Belgian screening mechanism is said to ensure Belgium’s attractiveness as an investment country, as it could make the Belgian economy more resilient and strategically autonomous. However, the opposite might just as well become reality, as high-profile investors might consider the Belgian FDI screening as too burdensome and hence shift their investment appetite to other, less stringent, countries and markets.
The specific implications could also reach further than their initial intend. Obviously, the addition of a new screening process will delay any future investment transaction. Moreover, some larger transactions will be covered by both the EU merger control procedure and the FDI screening mechanism. Apart from both having a two-stage procedure, these procedures are not tailored to one another, thus making the situation notably more complex. Lastly, in its proposal, Belgium chose not to implement any thresholds regarding turnover of the investment target. This means that all companies (ranging from start-ups to big corporates) active in a ‘sensitive’ field, which innovative tech start-ups often are (i.e. virtual reality, data-processing), will fall within the scope of the FDI screening.
Time will tell whether and in what form the proposal will eventually be approved by the relevant parliament(s). As of 2 December 2022, the Council of Ministers (‘ministerraad’) has approved the draft proposal as amended by the Council of State (‘Raad van State’). Since the proposal will still have to pass through parliament, the foreseen entry into force on 1 January 2023 will not be met. Nevertheless, with an expected entry into force in the first half of 2023, the Belgian merger landscape is certainly standing on the brink of a new era, be it for better or worse.
The Cresco team will closely monitor this topic, and inform you swiftly on any further evolutions
Olivier Van Raemdonck, Partner
Rutger Duden, Associate
 Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, OJ L 79I.
 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (Merger Regulation), OJ L 24.
 EU List of screening mechanisms notified by Member States, available at: https://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157946.pdf.
 Bestuursdecreet van 7 december 2018.
 Ontwerp van samenwerkingsakkoord van 1 juni 2022 tot het invoeren van een mechanisme voor de screening van buitenlandse directe investeringen.