New Foreign Investment Screening Act

29. 11. 2019
New Foreign Investment Screening Act

In April 2019, the EU Foreign Investment Screening Regulation entered into force, the main objective of which is to establish a uniform framework across the EU for the screening of foreign direct investments coming from outside the EU. In the Czech Republic, there is still no control mechanism for screening foreign direct investments. However, this should change with the new legislation in the form of the Foreign Investment Screening Act.

The bill has passed the interdepartmental comment procedure and is due to be submitted to the government in the near future. The Act is expected to come into effect during 2020.

The new Foreign Investment Screening Act will make it possible to screen investments with regard to their impact on the security of the Czech Republic and its internal order, and to monitor potentially risk capital flows coming to the Czech Republic from countries outside of the EU. Suspicious transactions that will be assessed as risky can be prohibited or cancelled, up to five years back from the completion of the investment. However, this will not apply to transactions made before the Act came into effect.

The current wording of the bill distinguishes two categories of investments. The first group includes foreign investments requiring a permit. Foreign investors wishing to invest in strategically important sectors such as manufacturing, research, development, military material innovation or crisis infrastructure, as well as development and production of dual use items, will need a state permit before the transaction. Foreign investment in these areas must not be made without a permit.

The second group includes all other foreign investments that may endanger the security of the Czech Republic or its internal order. Such investments may be made without a prior permit, but with the possibility of ex officio screening, for a period of five years following their completion.

In order to avoid the risk of cancellation of investments, the investor will be able to submit a request for consultation to the Ministry of Industry and Trade before making investment and have the investment screened. The investor will thus avoid potential complications in the future.

The bill assumes a three-month period between the validity and effect of the Act in order to provide foreign investors with the necessary time to adapt to the new conditions of investment in the Czech Republic.

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