Future screening of foreign direct investments takes shape in Belgium

The alleged access of a Chinese retailer to sensitive and secured zones of Liège Airport – the ninth largest logistic airport in Europe – that has raised the prospect of the potential transfer of personal data to China, together with the subsequent media coverage, has reactivated political attention on foreign direct investments (FDI) in Belgium.

The Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of FDI in the European Union became fully applicable as of 11 October 2020). However, Belgium does not yet have a screening mechanism for FDI at the federal level.

Belgium screening

The proposal for a federal screening mechanism is currently pending before the Belgian Chamber of Representatives. This legislative proposal, submitted on 23 February 2021, aims to amend the Belgian Code of Economic Law in order to introduce an ex ante screening mechanism in Belgium for foreign investors from non-EU countries.

The mechanism suggested under the Proposed Law introduces a notification obligation for investors from non-EU countries intending to invest in a number of strategic sectors:

• critical infrastructure (including health, energy, transport or the processing and storage of data);
• critical technology, as well as certain dual-use items as defined under Regulation (EC) No 428/2009 (including, among others, nanotechnology, biotechnology, artificial intelligence, and the aerospace industry);
• the provision of critical supplies (including, among others, energy, raw materials or food safety);
• the access to and control of sensitive information; and
• media.

Subject to certain thresholds, investments in these sectors will trigger a notification obligation. Investors will be obliged to give a notification under the proposed law when (directly or indirectly) acquiring 10% or more of the voting rights in an entity or when obtaining the power to appoint the majority of the directors of the entity. (Vincent Van Quickenborne, the minister of justice, recently referred to a threshold set at 25% or more of the voting rights.) Among affiliated companies, these thresholds will be calculated on a consolidated basis.

Investments that do not involve the acquisition of voting rights in an entity (that is, that do not entail the incorporation of or the acquisition of participations in a company), such as an asset deal, licenses or patents, will be subject to a notification obligation if the value of the investment is equal to or greater than €4,500,000.
The screening mechanism shall be applied on all non-EU investors including China and the US.

Mechanism procedure

If a planned investment falls within the scope of the proposed law, a notification will have to be given to the newly created screening commission, which will operate under the authority of the federal minister of economy. The commission will be composed of permanent representatives from the Ministry of Economy, Finance, Foreign Affairs, Mobility, Defence, Energy and Public Health, as well as two ad hoc representatives from the region where the investment is contemplated. National intelligence authorities will also provide opinions from a public security point of view.

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.

Once notified, the screening commission will have to decide whether or not to undertake further examination of the planned investment within a period of 21 days (within this period the regional authorities will be consulted). If the screening commission 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 screening commission is of the opinion that further examination is necessary , it may request all relevant additional information from either the applicant or third parties. Further examination will always be required in a number of cases (such as upon request by the government of a region or if the foreign investor has already been involved in activities that have had an effect on the security or public order of the state).

The commission will then have to perform the screening within a period of six months from the receipt of the latest additional information requested. Upon the advice from the screening commission, the federal minister of economy may: approve the planned investment; approve the planned investment subject to a number of conditions; or block the planned investment. Conditions may only be imposed, or a planned investment blocked, if this is necessary to protect national security or public order. If the federal minister of economy does not issue a decision within the six month period, the planned investment will be deemed to have been approved.

An appeal against the federal minister of economy's decision may be lodged with the Council of State.

Sanctions threat

The proposed law provides for considerable sanctions for foreign investors who fail to comply with the abovementioned procedure. These sanctions include the suspension of all voting rights related to the FDI until the finalisation of the screening process, administrative fines up to €100,000, and the obligation to retransfer the FDI to a party approved by the minister within a set period of time.

The proposed law is not yet adopted and might be subject to further modifications before being approved and implemented.

Mechanism in Flanders

An FDI screening is already implemented in Flanders via the Flemish Governance Decree (Bestuursdecreet) of 7 December 2018, which entered into effect on 1 January 2019.

The Flemish mechanism provides for an ex post screening mechanism for investments by foreign companies in Flemish governmental institutions. This includes, for example, companies that are controlled by the Flemish government or the local authorities, and certain institutions with a legal personality that have been established with the specific purpose of meeting the needs of public interest. This second category covers those entities of an institution that falls within the scope of the provision and finances more than half of the activities, has more than half the voting rights in the governing body, or exercises supervision. The Flemish government announced it would make available a non-limitative list of the institutions that fall within the scope of application but has not done so yet.

Under certain conditions, the decree gives the Flemish government the power to annul or declare the inapplicability of a legal action if, as a consequence of this legal action, a foreign company acquires the control or the decision-making power in a Flemish governmental institution, thereby threatening the strategic interests or the strategic independence of the Flemish Region or the Flemish Community.

The scope of the Flemish ex post screening mechanism is much more narrow than the new ex ante screening mechanism proposed at federal level. Should a transaction fall within the scope of both mechanisms, we expect the transaction to be dealt with in the first place by the federal screening commission (ex ante screening) where close cooperation between the Federal State and the regions is prescribed (including the potential conclusion of a cooperation agreement). Flemish screening mechanism might only remain relevant for transactions not falling within the scope of the federal scheme.

Osborne Clarke comment

While it aims to protecting Belgium's most valuable and most vital assets, FDI screening could hinder companies' capacity to predict and maintain control over a transaction timetable. Careful monitoring of local screening mechanisms will be key.

This is particularly true with regard to companies active in the critical infrastructure, healthcare and the supply of critical materials sectors, which are essential for combatting the Covid-19 crisis. If the Belgian government approves the proposed law, this could have an important impact on foreign investments in Belgium.