Slovakia’s revamped foreign investment regime
In our latest ForeignInvestmentLinks blog post we summarise the main changes to the scope of Slovakia’s foreign investment screening regime, following the adoption of new legislation (the FDI Act).
The new rules entered into force on 1 March 2023. Transactions closed before 1 March 2023 will not be affected, but the FDI Act will apply to transactions that, while signed prior to this date, have not yet closed. Slovakia is now among a number of EU Member States to have recently revamped their foreign investment regimes (see, for example, Belgium and the Netherlands).
Applicable only to “foreign” investors
The new Slovak rules apply to foreign investors making “in scope” investments in Slovakia. According to the FDI Act, foreign investors are:
(i) non-Slovak / non-EU citizens;
(ii) legal entities with residence outside of Slovakia / the EU;
(iii) Slovak / EU citizens where: (a) the deal financing is provided by a third-party state or state-owned entity; or (b) they act in concert with non-Slovak / non-EU citizens or legal entities, or a third-party state or state-owned entity; or
(iv) legal entities with residence in Slovakia / the EU where: (a) they are controlled by a third-party state or state-owned entity; (b) their ultimate beneficial owner(s) are non-Slovak / non-EU citizens or legal entities, a third-party state or state-owned entity; (c) the deal financing is provided by a third-party state or state-owned entity; or (d) they act in concert with non-Slovak / non-EU citizens or legal entities, or a third-party state or state-owned entity.
Foreign investors are also entities (regardless of legal personality) on whose behalf the investment is being made, provided these entities are owned, managed, etc. by foreign investors as per (i) to (iv) above.
Types of transactions caught by the FDI Act
Transactions within the scope of the FDI Act related to certain critical sectors triggering mandatory filing requirements, and non-critical sectors where a voluntary filing can be made, include the direct and indirect acquisitions of:
(i) assets;
(ii) control;
(iii) non-controlling participations in capital or voting rights triggering the following thresholds:
a. critical investments: 10%; 20%; 33%; and 50%;
b. non-critical investments: 25%; and 50%;
(iv) pledge / management rights (for critical investments only).
Internal reorganisations will also require careful assessment on a case-by-case basis.
Which entities are caught? (“Slovak targets”)
According to the FDI Act, Slovak targets are comprised of entities resident in Slovakia that either already exist or are being created in the context of a relevant foreign investment regardless of their legal form, legal personality, financing, or profit-orientation.
Which sectors are caught?
The new Slovak rules differentiate between: (i) critical; and (ii) non-critical investments. Critical investments concern investments in a Slovak target where there is an increased risk of adverse effects on the security or public order of Slovakia.
The final list of critical investments has been set out in an implementing regulation. They include, among others, the following investments:
(i) owning, operating, managing or using critical infrastructure (for example, energy, transportation, healthcare, chemicals, and information technology);
(ii) the production, development or maintenance of military technology / materials, or dual-use items;
(iii) activities in the area of biotechnology;
(iv) the provision of digital services in the area of cloud computing;
(v) activities in the media sector.
Implications for transactions
(i) Critical investments require the submission of a mandatory filing, and clearance must be obtained before the investment is closed.
(ii) A voluntary pre-closing filing can be made for non-critical investments.
(iii) The Slovak Ministry of Economy (Ministry) can investigate any non-notified investment (triggering a mandatory or voluntary filing requirement) up to two years after closing, especially when the transaction threatens to pose a risk to security or public order in Slovakia.
The initial Phase 1 review can take up to 45 calendar days. The in-depth Phase 2 review can take up to 130 calendar days including the Phase 1 review (although it is possible to extend this). The Ministry can clear the investment unconditionally, clear it subject to remedies, or prohibit the investment.
Foreign investors who fail to make a pre-closing filing (i.e., in relation to critical investments) can be subject to fines of up to 2% of global net turnover and remedial measures.
Top tips for foreign investors
To avoid being caught off-guard, investors should consider the applicability and timing implications of the FDI Act when making a foreign investment in Slovakia. Transaction documents can then incorporate any necessary protections, with parties needing to consider, for example, the conditions precedent that may be required, the risk allocation between the parties, and co-operation mechanisms and / or strategy.
It will also be important to develop a regulatory engagement strategy to obtain the necessary approvals and to ensure co-ordination with filings being made in other jurisdictions (particularly other EU jurisdictions, given the co-operation requirements under the EU foreign direct investment screening mechanism).
