As of July 1, 2023, Belgium has applied a new uniform screening mechanism for FDI, (Foreign Direct Investment) laid down in a Cooperation Agreement, agreed upon by all Belgian regions and the Belgian Federal State.

Under this mechanism, direct or indirect investment by foreign investors in a legal entity established or headquartered in Belgium, leading to the ownership of certain percentages of voting rights or to ‘control’ of a company or entity will be subject to notification and approval obligations depending on the sector of activity of that Belgian target company or entity.

The system can be applied retroactively, with the ISC (Interfederal Screening Committee) being able to review transactions that closed up to two years (and in exceptional circumstances even five years) prior to the entry into force of the Belgian FDI Screening Mechanism.

Key Takeaways

• 1. Belgium is implementing a new uniform screening mechanism for foreign direct investments (FDI) with effect from July 1, 2023
  1. The scope of the mechanism covers a very wide range of sectors, including defense, energy, cybersecurity, critical infrastructure, and strategic biotechnology, food security, etc
  1. The mechanism applies to non-EU investments (this also includes investments by EU or Belgian companies where one of the ultimate beneficial owners resides outside of the EU) that lead to the direct or indirect acquisition of voting rights in or control of Belgian companies. Therefore, the acquisition of an entity not based in Belgium but having a stake in a Belgian entity would also fall under the new mechanism
  1. Non-EU investments also includes EFTA countries, UK, and Switzerland
  1. Greenfield investments, which involve creating new economic activities, are not covered by the mechanism. However, intragroup restructurings are subject to screening, provided that the conditions have been met
  1. The procedure provides for two phases: an assessment phase and (for problematic transactions) also a screening phase. Parties can offer commitments to obtain approval. The expected typical duration of the screening process is 2-3 months. This has to be taken into account in the transaction timeline
  1. Parties must comply with the notification obligation and suspend the implementation of investments until clearance is obtained to avoid penalties.

IN DEPTH

Suspensory Effect of Notification – Impact on M&A Deal Table

Until the transaction has been approved by the newly created Interfederal Screening Commission (ISC), the transaction cannot be closed. Therefore, next to current merger control rules and the new foreign subsidies regulation, this is a third regulatory regime that has to be taken into account for purposes of transaction timing, long stop dates, hell or high water clauses, etc.

On average, the FDI review process is expected to take between 2-3 months.

Foreign Investors

Foreign investors are defined broadly as:

• Private individuals whose main residence is outside the European Union
• Third country undertakings, i.e., established or otherwise organized under non-EU member state laws
• Undertakings of which one of the ultimate beneficiary owners has its main residence outside of the European Union

It is important to note that investments from countries which are part of the European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway, and Switzerland, are also subject to the notification requirement. The only investments that are exempted from screening are those originating from countries within the European Union and without any link to a non-EU country or a non-EU beneficial owner.

Scope

The scope of this mechanism covers investments made by foreign direct investors in various predefined sectors.

Foreign Direct Investors

A broad spectrum of investors falls within the scope of Belgium’s FDI screening mechanism. They include:

• Private individuals whose main residence is outside the European Union
• Undertakings established under non-EU country laws
• Those with ultimate beneficial owners residing outside the European Union

It is important to note that investments from EFTA countries are also subject to the notification requirement. The only investments that are exempted from screening are those originating from countries within the European Union and without any link to a non-EU country.

Foreign Direct Investments

The FDI screening mechanism in Belgium targets foreign direct investments that aim to establish or maintain lasting and direct connections between the foreign investor and the Belgian enterprise.

However, it does not cover greenfield investments, which involve creating new economic activities without acquiring existing ones. Also, public contracts as such do not fall within the scope of the cooperation agreement.

The mechanism applies to investment agreements signed on or after July 1, 2023. The need for a notification is not influenced by the size of the investment.

The following transactions will require an FDI filing in Belgium, provided all other conditions are also met:

• Acquisitions of control over Belgian companies active in certain sectors
• Acquisitions of at least 25% of the voting rights in Belgian companies whose activities touch upon:
  – A wide range of critical infrastructures, physically and virtually, for energy, transportation, water, health, electronic communications and digital infrastructure, media, data processing or storage, etc.
  – Technologies and raw materials that are critical for safety (including health safety), defense, maintaining public order, military equipment subject to the Common Military List, dual use goods
  – Critical input supply, among which are counted energy or raw materials, including security of food supply
  – Access to sensitive information or personal data or the possibility to control such data
  – Private security
  – Freedom and pluralism of media
  – Strategic biotechnology if the target’s turnover in the preceding accounting year exceeds EUR 25 million
• Additionally, acquisitions of at least 10% of the voting rights in Belgian companies engaged in activities that touch on the sectors of defense, including dual use goods, energy, cybersecurity, electronic communication, or digital infrastructures, provided that the target’s turnover exceeded EUR 100 million in the preceding accounting year.

Foreign investors who already hold a participation below the specified thresholds but exceed them through additional investments are also subject to the screening mechanism.

Internal restructurings within a business group, where the Belgian company remains ultimately owned or controlled by the same non-EU company, fall within the scope of the Cooperation Agreement as long as the general conditions outlined in the agreement are met, as there are no specific exceptions for internal restructurings.

Procedures of the Belgian FDI Screening Mechanism

When a transaction meets the criteria of a foreign direct investment caught by the FDI regime, the acquirer is required to notify the transaction to the ISC. The ISC is a body composed of 9 members, 3 from the competent federal ministries and 6 from the different competent federated entities.

Notification should be made based on the signed agreement. Notification on the basis of a draft agreement is also possible.

Assessment Phase

Once the ISC secretariat informs the notifying parties that the notification is complete, the Assessment phase is started. During that phase, the notification is sent in full to all competent members of the ISC, and a summary is sent to the members of the ISC that are not competent. If one of the latter considers it is competent, it will also receive a full file. Each of the competent members of the ISC will carry out its own independent investigation.

If one of the competent members has concrete indications that the notified transaction entails potential risk for public order, national security or strategic interest, the transaction is referred to the Screening Phase.

A decision in the Assessment Phase has to be taken within 30 days from receipt of the complete notification file. If this deadline lapses, the transaction is tacitly approved. This delay can be suspended by requests for information.

Therefore, at the end of the Assessment Phase, the following outcomes can be achieved:

• Transaction is approved explicitly or tacitly
• Transaction is referred to the Screening Phase

Screening Phase

Once the Screening Phase is initiated, each of the competent members of the ISC will draft advice that may conclude that the notified transaction raises potential risks for public order, national security or strategic interests. A copy of this advice is shared with the foreign investor and the Belgian companies that are involved in the transaction. They will be granted access to the file, and can submit written observations on the file and request a hearing.

Following receipt of advice highlighting potential risk from one of the competent members of the ISC, the notifying parties can enter into negotiations with the competent member of the ISC in order to agree on corrective measures in order to alleviate the concerns as to the potential risks for public order, national security or strategic interests.

At the beginning of the Screening Phase, the cooperation mechanism as laid out in Regulation 2019/452 of the European Parliament and of the Council of March 19, 2019 establishing a framework for the screening of foreign direct investments into the Union is also set in motion.

In principle a decision in the screening phase has to be taken within 28 days. However, communication with the European Commission and other Member States, negotiations with the parties on corrective measures, etc. can easily result in decision timeframes of 2-3 months or even longer.

At the end of the Screening Phase, one of two outcomes is possible:

• Transaction is approved explicitly or tacitly, with or without commitments
• Transaction is prohibited

A prohibition decision at the federal level can only be made by the council of ministers. A prohibition decision at the federated level must be taken unanimously by all competent federated ministers.

Appeal

A final decision by the ISC can be appealed to the Brussels Markets Court. If the Brussels Markets Court finds fault with the ISC’s decision, the file is referred back to the ISC.

Fines

In order to ensure compliance and mitigate the risk of penalties, it is crucial for transacting parties to suspend the implementation of investments until a final decision is reached. It is of importance to strictly adhere to the specified timelines and requirements.

Failure to comply with the notification obligation or violating the standstill obligation can lead to financial consequences, with administrative fines of 10%, and in some special cases even fines of up to 30%, of the total investment amount.

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