Following the implementation of the Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for screening foreign direct investments in the European Union (the FDI Regulation), it was much anticipated that all EU countries will eventually introduce foreign direct investment (FDI) screening mechanism at each national level.

It took some time for Belgium to start discussions on FDI screening mechanism within different federal and regional entities. On November 30, 2022, a draft Cooperative Agreement implementing a Screening mechanism for Foreign Direct Investment was published (the Cooperation Agreement).

The Cooperation Agreement was intended to take effect the beginning of 2023. It is now certain that the FDI screening mechanism will enter into force as of 1^st of July. Recently we have received from VBO/FEB the guidance in clarifying certain questions pertaining to the scope of application and procedure (the Guidance).

In short, in respect of all capital increase and acquisition deals which will be signed prior to the 1^st of July, the non-EU investor is not obligated to notify the Inter-Federal Screening Committee (the Committee), even if the “closing” happens after 1^st of July. However, for all FDI transactions which will be signed after the 1^st of July, a notification obligation is imposed, and the screening procedure will apply.

1. Scope of Application

The notification will be triggered, and the screening procedure will apply if the following three conditions are met:

1. The investor is considered as a “foreign investor”

According to Article 2, 4° of the Cooperation Agreement, not only a natural person with its principal residence outside of EU, or a legal entity with its registered address or main activity outside of the EU (for instance, a PRC national or a PRC company), but also all enterprises of which one of its ultimate beneficial owners has its main residence outside of EU.

Therefore, the scope also includes any acquisition or capital increase carried out by a Belgian or EU subsidiary of a non-EU group, for instance, the Belgian subsidiary of a Chinese group will be qualified as “foreign investor”.

2. The investment enables the foreign investor to gain, directly or indirectly, at least:

• 10% of the voting rights in a Belgian company, of which the activities are within the following sectors: defence (including dual-use goods), energy, cybersecurity, electronic communication, or digital infrastructure, of which the turnover in the financial year prior to the acquisition is more than 100 million euros (Article 4, §2, 1° of the Cooperation Agreement); or
• 25 % of the voting rights in a Belgian company, of which the activities are within the following sectors:

1. 1. 1. critical infrastructure (both physical and virtual) for energy, transport, water, health, electronic communication, digital infrastructure, media, data processing and storage, aerospace and defence, elections or financial infrastructure and sensitive installations, including land and real estate that are crucial for the use of such infrastructure, including infrastructures listed in several EU regulations;
      2. technology or resources of essential importance for: security (including health security); defence or the enforcement of public order whose disturbance, failure, loss or destruction would have significant consequences for Belgium, an EU Member State or the EU; military equipment subject to export control rules and national controls; dual use goods; and technology with strategic importance such as artificial intelligence, robotics, semi-conductors, cyber security, aerospace, defence, energy storage, quantum and nuclear technologies and nano-technologies;
      3. the supply of critical inputs including energy or resources and the security of food supplies;
      4. access to sensitive information, and personal data or the ability to control such information;
      5. the private security sector;
      6. media freedom and plurality; and
      7. technologies of strategic importance in the biotechnology sector, on the condition that the enterprise’s turnover in the financial year prior to the acquisition of at least 25% the voting rights is more than 25 million euros. (Article 4, §2, 2° of the Cooperation Agreement)

3. The investment touches upon the above listed sensitive sectors.

We would like to note that:

1. The turnover threshold only applies to the investments into biotechnology sector (25% threshold) and the investments into the most sensitive sectors (10% threshold).
2. Once the 10% or 25% threshold is reached, the notification obligation will be triggered. For instance, if a non-EU investor already holds 20% voting rights, then participates in a capital increase, once it holds more than 25% voting rights, the transaction needs to be notified. It was also clarified in the Guidance that internal restructuring of a group of companies will also trigger the notification requirement if the voting rights threshold is reached.
3. Even if part of the activities of a Belgian target company touch upon the above-listed sectors, the investment needs to be notified.

2. Screening procedure triggered by notification

 The screening procedure is consisted of (i) the notification by a foreign investor; (ii) the assessment phase; and (iii) the screening phase. Not all transactions will automatically enter the screening phase.

1. Notification

FDI transactions that are within the scope of application must be notified by the foreign investor or its representative to the Inter-Federal Screening Commission. The notification must include extensive information on the foreign investor, the target, transaction, the financing of the transaction, products and activities of the foreign investor and target company (etc.)

2. Assessment

The Inter-Federal Committee will analyse, within a period of 30 days, all the documents submitted by the foreign investor.

After assessment, if the transaction is considered as not having any risks for public order, national security or strategic interest, the procedure will be terminated. Or if the Committee considers the transaction is likely to pose such risks, the screening phase will follow.

3. Screening

During the screening process, the Committee will draw up a draft opinion, which will be communicated to the foreign investor. The foreign investor has the right to consult the whole file and the draft opinion. The foreign investor will have ten (10) days to present their written observations. The Committee will also organise a meeting after receiving such written observations. In this process, information will be shared with EU Commission and other EU member states for their observations on the transaction.

The final decision could either be (i) the transaction is cleared, (ii) the transaction is cleared with corrective measures; or (iii) the transaction is refused.  The foreign investor will have the right to negotiate with the Committee on corrective measures.

3. Screening procedure at the initiative of the Commission

The Committee may, at its own initiative, start a screening procedure if at least one of its members deems it necessary for reasons of public order, national security, or strategic interests.

This procedure applies even if a notification mentioned in Section 2 has not been made.

The Committee may, after screening, impose certain structuring measures. The screening can happen after the foreign investor acquires control for up to two years, which may be extended to five years in certain cases.

 4. Sanctions

In case of non-compliance by a foreign investor, it may receive an administrative fine of 10% to 30% of foreign direct investment amount.

5. Appeal

 The final FDI decision reached by the Committee is subject to an appeal in front of Court of Market.  The court can annual the decision and the file will be returned to the Committee for a second review.

Except for greenfield investment, in case any Chinese investor is currently negotiating or contemplating on any capital increase, share participation or acquisition of a Belgian company, regardless of whether an intermediate acquisition vehicle will intervene in the structure, it should carefully assess the application of the new FDI screening procedure in Belgium and its implications on the deal structure.

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For more information on the FDI screening mechanism in Belgium, please contact DALDEWOLF CHINA DESK (Xiufang Tu, atu@daldewolf.com).