On 1 July 2023 the new Belgian foreign investment screening regime will enter into force following the adoption by all relevant parliaments of the law introducing the general and suspensory foreign investment screening mechanism. The new regime will capture transactions in a broad range of industry sectors involving acquirers established outside the European Union. It will largely reflect the draft text agreed by the various federal and federated governments of Belgium on 1 June 2022, on which we reported in our previous blog post, subject to a few changes prompted by the advice of the Council of State.
Most importantly for investors currently contemplating deals involving a Belgian element is that the regime will apply to all transactions that fall within the material scope of the regime and have not been signed by 1 July 2023. Investors involved in transactions that will sign after this date should therefore carefully evaluate the implications of this new regime.
On 31 May 2023 the Belgian Ministry of Economy published draft guidelines aimed at clarifying certain areas of the new regime. They were drafted as a dynamic document and may be updated from time to time as new questions arise and decisional practice develops. While the draft guidelines include a number of welcome clarifications, a number of grey areas remain.
Scope of the regime
As previously reported, the new regime will apply to investments by foreign investors into entities and undertakings in Belgium which may impact national security or public order, or the strategic interests of the Belgian federal and federated entities.
Foreign investors include (i) natural persons with main residence outside the EU, (ii) undertakings established outside the EU and (iii) undertakings the ultimate beneficial owner (UBO) of which have their main residence outside the EU. Unlike regimes in some other EU Member States (e.g. France), investments by investors based in the EU are not captured by the new regime.
The new regime will apply to direct and indirect acquisitions of 10 per cent or more of the voting rights of a Belgian entity active in the defence sector, including dual-use goods, energy and cybersecurity, electronic communications or digital infrastructure, provided that the target’s turnover exceeds €100 million.
In addition, the regime covers direct and indirect acquisitions of more than 25 per cent of the voting rights in Belgian entities, irrespective of the transaction value or the target’s turnover, that touch upon:
- Critical infrastructure including energy, transport, water, health, electronic communications and digital infrastructure, media, data processing or storage, aviation, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as the land and real estate crucial for the use of such infrastructure;
- Technologies and raw materials that are of essential importance to:
- Safety, including health safety;
- Defence and public security;
- Military equipment subject to the “Common Military List” and national export control;
- Dual-use goods; and
- Technologies of strategic importance (e.g., artificial intelligence, semiconductors, robotics, cybersecurity, aerospace, defence, energy storage, quantum, nuclear technologies and nanotechnologies);
- Supply of critical inputs, including energy or raw materials, as well as food security;
- Access to sensitive information including personal data, or the ability to control such information;
- Private security; and
- Media freedom and pluralism.
The regime also covers acquisitions of more than 25 per cent of the voting rights in Belgian entities that are active in technologies of strategic interest in the biotech sector provided that the Belgian target’s turnover exceeds €25 million.
The regime captures both de novo acquisitions of stakes exceeding the relevant thresholds and acquisitions of incremental stakes. For example, when a foreign investor already holds a 20% stake in a Belgian entity active in a sector considered to be strategic, and subsequently acquires a further 5%, a filing will be triggered.
It also covers internal reorganisations where all the other materiality thresholds are met. This means that transactions whereby there is ultimately no change of control can be captured by the regime.
Foreign direct investments within the scope of the regime will need to be notified and approved prior to closing (i.e. the regime is suspensory). In principle, a notification should be made on the basis of the signed transaction documents, but parties can submit a notification based on draft documents provided that they explicitly declare that they intend to come to a final agreement on all material points that would not substantially differ from the notified draft. There is no filing fee.
A new Interfederal Screening Commission (ISC) is being created, composed of at least 11 members: three representatives of the Federal State, three representatives of the Regions (the Flemish Region, the Walloon Region and the Brussels-Capital Region) and five representatives of the Communities (the Flemish Community, the French Community and the German-speaking Community, the French Community Commission and the Common Community Commission).
The review process will include three separate phases:
- During the pre-notification phase (Phase 0) the secretariat of the Ministry of Economy will analyse the notification and determine whether the filing is complete. These pre-notification discussions are not subject to any statutory timetable and serve a similar purpose to pre-notification in merger control investigations.
- During the assessment phase (Phase 1), the transaction will be sent for review to the competent members of the ISC (who will be determined based on the nature and location of the target’s activities). They can request advice from other government entities and additional information from the parties. However, advice from the Coordination Committee for Intelligence and Security (CCIS) is mandatory. The review is to be completed within 30 calendar days. Requests to provide additional information will pause the review timetable. If at least one of the competent ISC members raises concerns, the transaction will be referred to an in-depth Phase 2 investigation.
- The screening phase (Phase 2) will involve a more concrete risk assessment of the transaction. At the end of this phase, each competent ISC member will issue within 20 calendar days draft advice for the federal, regional or community minister or college member they represent. Each competent minister or college member will then have six calendar days to share its preliminary decision with the ISC, after which the ISC has two calendar days to combine the preliminary decisions of each competent ministry into one consolidated decision and notify the parties. In principle the screening phase should therefore be completed within 28 calendar days. However, we expect that in practice this phase may last longer as requests for information, access to file, and remedies negotiations will impact the timeline. If the investment touches upon the competences of more than one entity in Belgium (e.g. the federal state and the federated entities, or several federated entities), a unanimous decision must be reached in order to prohibit the investment. However, the federal government has a veto power to either block or clear the transaction (if it is linked to its competences).
As in other Member States, the new rules provide for the parties to negotiate remedies to address any concerns identified during the review. The new regime identifies the types of remedies that the government is likely to impose and/or accept, including (i) a code of conduct for the exchange of sensitive information, (ii) appointment of compliance officer(s) who will be in charge of dealing with sensitive information, (iii) bundling the sensitive activities in a separate entity to which access / control is limited, (iv) appointment of a separate supervisory board, (v) periodic reporting or periodic controls, and (vi) limitation on the number of shares that can be acquired.
As is the case in other Member States, the ISC will have the power to initiate an ex officio investigation into a reportable foreign investment that has already been implemented up to five years after closing of the transaction: these call-in powers will also be applicable to transactions that have been signed prior to 1 July 2023.
The new regime applies to all foreign investments that have not been signed by 1 July 2023. Investors must therefore self-assess whether deals may fall under the mandatory regime and cater for a potential notification in their deal timetable.
Deal documents Appropriate conditionality, risk allocation provisions and long stop dates should be included in the deal documentation for those deals that may be caught by the new regime.
. Investors may face fines of between 10 and 30% of the value of the investment if they fail to notify a reportable investment or provide incorrect or misleading information.
Please contact us or your usual contact in our Antitrust, Competition and Trade team if you would like to discuss this update further. To read more about foreign investment regulations globally visit our Foreign investment monitor and our Global antitrust in 2023: 10 key themes report.