Belgium's new screening mechanism for foreign direct investments: what investors need to know

Until recently, Belgium did not have a screening mechanism for foreign direct investment (FDI) in place at the federal level. As of 1 July, a new FDI screening mechanism will apply to transactions and agreements entered into in Belgium. FDI agreed prior to 1 July 2023 but completed afterwards will also be captured by the new rules.

At the end of 2022, Belgian federal and federated governments came to an agreement on the framework for an ex ante screening mechanism in Belgium for foreign investors from non-EU countries. (Investments from the countries of the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway and Switzerland – must also be notified.)

Cooperation Agreement

A Cooperation Agreement was adopted on 30 November 2022 by the Belgian federal and federated authorities in order to introduce an ex ante screening mechanism in Belgium for foreign investors from non-EU countries.

The agreement establishes an Inter-federal Screening Commission (ISC), composed of representatives from the federal government, the communities and the regions, which will be in charge of the screening of planned investments falling within scope.

The ISC will be in charge of assessing whether planned FDIs pose a threat to national security, public order or strategic interests.

Mechanism's scope

The Cooperation Agreement introduces a notification obligation for investors from non-EU countries – again, investments from EFTA countries must be notified – intending to directly or indirectly acquire control over a Belgian entity that is active in a number of strategic sectors and where the transaction exceeds certain turnover thresholds.

The notion of "control" is the possibility of exercising decisive influence on the activities of the enterprise, through right of ownership or of use of the assets of an enterprise or its parts, or the composition, voting or decisions of one or more bodies of the enterprise. The Cooperation Agreement refers to the European Commission’s Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings for the interpretation of the notion of control.

25%-plus acquisitions

The notification obligation covers investments aimed at acquiring directly or indirectly 25% or more of the voting rights in a Belgian entity (irrespective of the size or turnover of the target company). The sectors and activities are:

• Critical infrastructure, both physical and virtual, relating to energy, transport, water, health, electronic communications and digital infrastructure, media, data processing, aerospace, defence, electoral infrastructure, financial infrastructure, sensitive installations, etc.
• Technologies or raw materials that are essential for public security, defence, public order, dual-use products and of technologies of strategic importance (for examples, artificial intelligence, robotics, semiconductors and nuclear technology).
• The supply of basic goods related to food security, energy or raw materials.
• Access to or control of sensitive information, including personal data.
• Private security.
• Freedom and pluralism of the media; or
• Technologies of strategic interest in the biotech sector. These transactions only fall within the scope of the screening mechanism if the turnover of the target in the financial year preceding the acquisition of 25% or more of the voting rights exceeds 25 million euros.

10%-plus acquisitions

Investments aimed at acquiring directly or indirectly 10% or more of the voting rights in a Belgian entity with an annual turnover of at least €100 million during the financial year preceding the acquisition of the voting rights and whose activities are linked to the following sectors:

• Defence (including dual-use goods).
• Energy
• Cybersecurity
• Electronic communications.
• Digital infrastructure.

The screening mechanism applies to all non-EU investors, including China and the US. Greenfield investments – where a new venture is launched from the ground up – do not fall within the scope of the screening mechanism.

Also, the Cooperation Agreement makes no exception for internal restructuring. Internal restructuring within a group of companies, where the Belgian company remains ultimately owned or controlled by the same non-EU company, therefore falls within the scope of the Cooperation Agreement.

Broad scope

Moreover, the Cooperation Agreement lists the sectors covered by the filtering mechanism without further details as to which FDIs would fall within its scope.

The legislators appear to have chosen a broad scope to capture a significant proportion of the FDI under the control of the ISC. For example, a contract development and manufacturing organisation or a company active in medtech or digital health software could well fall within the scope of the Belgian regime; however, this does not mean the FDI would be blocked systematically.

Screening procedure

If a planned investment falls within the scope of the Cooperation Agreement, a notification will have to be given to the ISC. This notification will have to contain specific information, including the approximate valuation of the planned investment, the ownership structure of the investor, and how the planned investment will be financed.

The screening procedure will consist of two phases: an assessment followed by screening.

Once it has received all necessary documents for the evaluation, the ISC will in a first assessment phase have to decide whether or not to undertake further examination of the planned investment within a period of (in principle) 30 days (within this period the regional authorities will be consulted).  

If the ISC is of the opinion that the investment may proceed, it will notify the investor and the investment may take place upon receipt of said notification.

If, on the contrary, the ISC is of the opinion that further examination is necessary, it will proceed to a second phase: the screening phase. The ISC will then have to perform the screening within a period of (in principle) 28 days from the receipt of the latest additional information requested. Nevertheless, this is only a base period which is likely to be prolonged, as the Cooperation Agreement provides for multiple instances in which this period will be suspended.

Combined decision

Upon the advice from the ISC, the ministers, in a combined decision, may either approve the planned investment, approve the planned investment subject to a number of conditions or block the planned investment.

According to an estimate of the federal administration, this first phase should concern 70 to 80 transactions per year. Conditions may only be imposed or a planned investment blocked if this is necessary to protect national security and public order or the strategic interests of the federated entities. If a combined decision is not issued within the required time period, the planned investment will be deemed to have been approved.

An appeal against the decision may be lodged with the Market Court.

Neither the investor nor the Belgian company in which the investment is made must pay for the screening of an investment.

Foreign investor sanctions

The Cooperation Agreement provides for considerable sanctions for foreign investors who fail to comply with this procedure. These sanctions include administrative fines up to 10-30% of the investment.

The ISC, in case of "gun jumping" (implementation of the reportable transaction before the ISC is notified), may initiate a procedure ex officio. In that case, structural adjustments and remedial measures may be imposed on the parties up to two years after the implementation of the reportable transaction (extended to five years if the parties acted in bad faith). The parties may then also be subject to administrative penalties of up to 30% of the investment's value.

Osborne Clarke comment

In comparison with our neighbours, the Belgian FDI regime is not applicable to investments from investors based in the EU.

The Belgian FDI screening will therefore affect most non-EU M&A and investment processes in Belgium. This is particularly true regarding companies active in the critical infrastructure, healthcare, tech and the supply of critical materials.

For these FDI, the new screening will impact transaction timeline and require careful monitoring and preparation.