Foreign investment control in Belgium – Lessons learnt from one year of practice

For a more technical explanation on the functioning of the regime, we refer to our previous blog post.

Scope of the regime

The Belgian investment screening regime, like many of its European peers, has a broad scope. The regime applies to a range of sensitive sectors, which are widely defined, without further guidance on the specific types of activities that it aims to cover or any materiality thresholds. In addition, the Belgian FI regulator, the Inter-federal Screening Commission (ISC), does not provide informal guidance to investors and urges investors to notify when in doubt as to whether an investment is covered by the regime. 

One of the reasons for this broad scope is a peculiarity of the Belgian FI regime - which in reality is a “cooperation agreement” that is the product of a political compromise among various levels of the Belgian government (federal, regional, and communal). The ISC is primarily an intergovernmental cooperation forum and strictly adheres to the stipulations of the cooperation agreement. This structure limits the ISC's flexibility and ability to offer guidance or clarifications on the scope of the regime. 

In a welcome move, the ISC has released Q&A guidelines addressing various facets of the Belgian FI regime. While the guidelines provide clarity on many points, they leave a number of questions unanswered and also raise some new ones. Some observations:

• A Belgian branch of a non-Belgian legal entity falls within the scope of the regime if it engages in sensitive activities. Similarly, asset deals are covered by the regime, although this requires a detailed case-by-case analysis. A mere presence (e.g. through turnover) in Belgium is however not sufficient to fall within the scope of the regime.
• A change in the quality of control (e.g. a move from joint to sole control) is covered by the regime. That is not surprising as the position is the same under merger control rules. However, a strict reading of the ISC’s guidelines suggests that any increase in the level of control (e.g. the acquisition of additional veto rights that could by themselves trigger control), without a change in the quality of control, can trigger a filing requirement. Further guidance on this point would be helpful.
• Even if the investor already controls the target (through veto rights and with <10% or <25% voting rights respectively), merely exceeding the 10% or 25% voting rights thresholds can fall within the regime. Both the law, and the ISC’s guidelines, are unclear on this interplay between the different thresholds. However, a holistic reading of the regime, especially given its reliance on merger control rules, would instead suggest that such a situation should not fall within the regime (as control is already present and the voting rights thresholds are rather meant to cover additional scenarios where control is deemed to be present). Further guidance on this point would also be helpful.
• Internal restructurings are covered by the regime - and more than 20% of the notifications so far have concerned internal restructurings. At the same time, multiple internal restructurings around the same time and with the same intent, or an external investment preceded/followed by an internal restructuring, can be consolidated into one single filing.
• The ISC has the ability to call-in investments that were not notified. The regime and the guidelines are however contradictory on whether the ISC may only call-in investments that fall within the scope of the regime, or whether it also has residual jurisdiction to call-in investments that fall outside the scope of the regime. The law suggests the former, while the guidelines indicate the latter.
• The concept of “non-EU investor” is interpreted broadly. As soon as a non-EU (holding) entity is interposed in the control chain between the target and the ultimate investor (which may be an EU entity), the investor will be considered “foreign” for the purpose of the regime. Additional caution is required in the context of a foundation, which will be considered as a non-EU entity as soon as a single board member has his/her main place of residence outside of the EU.

The broad scope of the regime and the ISC’s position to notify when in doubt, has resulted in many precautionary filings being made. Indeed, between July 2023 and April 2024, 46 investments were notified to the ISC. In none of these cases did the ISC find that it lacked jurisdiction to review the investment in question. The below chart shows the top 5 sectors that triggered filings (until April 2024). Up to now, the non-EU countries most affected by notifications have been the US, UK, Switzerland, India and Canada, which represent around 85% of notifications.

Review process and timeline

Much like the process in other countries, the review process by the ISC is typically a “black box” with little insight for the notifying investor(s) and little to no communication with the ISC (other than initial questions to ensure the filing is complete). In its review, the ISC relies on input from experts at different levels of government (depending on the sector involved). The Belgian intelligence services also have the ability to ask questions and refer cases to a phase II screening procedure without disclosing the reasons. Notifications and decisions are not published, which further adds to the unpredictability of the regime.

That said, the ISC has - in our experience - shown a pragmatic and accessible approach during the review process. Acknowledging the opacity of Belgian FI rules, the ISC is willing to engage with investors (to the extent possible) and frequently updates its guidelines and notification forms. The ISC also encourages investors to share anticipated deal timelines.

Based on our experience to date, the ISC seems to focus its review on: (a) the identity of the ultimate beneficial owners (UBOs) of the investor; (b) the influence/involvement of foreign governments over the investor; (c) the specific activities of the Belgian target; and (d) the rationale for the investment.

On the plus side, investments that do not trigger questions or raise concerns typically pass through the initial (phase I) verification phase swiftly. These investments are generally cleared within 36 days after notification. There is often one round of questions to ensure the file is complete. So far, nearly 95% of the notified investments were cleared at the end of the phase I procedure.

Despite the fact that there have been, to date, no prohibitions, the ISC has launched at least four in-depth phase II screening procedures. Any competent member of the ISC or the CCIV (the Belgian coordinating committee for intelligence and safety) may request the opening of the phase II screening procedure. The reasons for opening a phase II investigation are typically unclear, but such a decision can have a major impact on the closing timetable (a phase II investigation can rapidly escalate to take three to four months). Not just the investor, but also the target company, may be involved in the screening procedure.

Looking ahead

In a recent report, EY concluded that Belgium holds up well as a destination for investments, within the general context of declining foreign investments in Europe. While within the EU, only the Netherlands has been able to grow foreign investment (by 7% in 2023 compared to 2022), the decline in Belgium was relatively limited (8%), certainly compared to outliers such as Germany and Italy (where foreign direct investment fell by 12% in both).

Following a public consultation in February 2024, the ISC has announced plans to simplify and streamline its notification form. The first major evaluation of the regime is scheduled for the second half of 2025. While no major reforms are expected in the short term, we do expect further updates to the ISC's Q&A guidelines.

In the longer term, further expansions of the Belgian regime cannot be excluded, in line with developments at the EU level. More specifically, in January 2024 the European Commission published a proposal which would set higher minimum standards (including on the sectors covered) for the FI regimes of EU Member States. While the broad scope of the Belgian FI regime is already likely to cover the additional sectors set out in the EC’s proposal, the Belgian legislator may either draw inspiration from this proposal and explicitly include certain activities, or rely on it for its (already) expansive application of the current regime. Despite being a proposal at this stage, it signals the direction of travel for foreign investment control in the EU.