Foreign direct investment
18 July 2023
As of 1 July 2023, a new regime for the notification and screening of foreign direct investment (FDI) came into force in Slovenia, regulated by the amended Investment Promotion Act (hereinafter: ZSInv), which replaces the provisions of Chapter 11 of the Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the COVID-19 Epidemic (hereinafter: ZIUOOPE), which regulated the aforementioned topic only on a temporary basis. Thus, all FDI notification applications submitted up to and including 30 June 2023 will still be subject to the provisions of the ZIUOOPE, while applications submitted from 1 July 2023 onwards will have to be made in accordance with the provisions of the ZSInv.
The upgraded mechanism set out in the ZSInv thus introduces a number of innovations compared to the ZIUOOPE, the most important of which are the following:
• amends the definition of a foreign investor;
• amends the definition of foreign direct investment;
• amends the scope of transactions subject to notification obligations;
• amends the scope of the information required by law at the time of notification and amends the notification procedure;
• introduction of a new body, the Notification Commission and renaming of the former Commission to an Expert Group;
• a more precise definition of the conditions for making a foreign direct investment if an impact on the security or public order of the Republic of Slovenia is established;
• introduces additional sanctions.
1. DEFINITION OF A FOREIGN INVESTOR
The definition of a foreign investor under the ZIUOOPE includes a national of any country outside Slovenia or a legal person established in any country outside Slovenia, whereas the ZSInv has narrowed the definition of a foreign investor to nationals of a third country or legal persons established in a third country. Moreover, a third-country national or a legal person established in a third country who holds, directly or indirectly, at least 10% of the capital or voting rights in a legal person established in an EU Member State and intends to make a direct foreign investment in the Republic of Slovenia or has already done so, is also considered a foreign investor.
2. DEFINITION OF FOREIGN DIRECT INVESTMENT
The ZIUOOPE defines a foreign direct investment as an investment made by a foreign investor and the purpose of which is to establish or maintain permanent and direct links between the foreign investor and a business entity established in the Republic of Slovenia, by acquiring at least a 10% participation in the capital or voting rights. The ZSInv adopts the following paragraph, adding that this constitutes not only the first investment, but also any subsequent investment representing either a direct or indirect participation in the capital or voting rights.
3. THE SCOPE OF TRANSACTIONS SUBJECT TO NOTIFICATION OBLIGATIONS
The period within which the notification must be notified to the competent authorities remains the same, i.e. 15 days. However, the ZSInv omits the phrase "from the conclusion of the merger agreement or from the announcement of the takeover bid" contained in the ZIUOOPE and replaces it with "from the conclusion of the transaction by which the foreign investor acquires, directly or indirectly, at least 10% of the capital or voting rights in a company established in the Republic of Slovenia, or from the announcement of the takeover bid". This broadens the scope of transactions triggering the notification obligation to include investments which do not constitute a merger or the announcement of a takeover bid.
4. THE SCOPE OF THE INFORMATION REQUIRED BY LAW AT THE TIME OF NOTIFICATION AND THE NOTIFICATION PROCEDURE
For the purposes of notification, the ZIUOOPE already requires a certain set of information to be submitted. In this respect, the ZSInv adds:
• a detailed description of the foreign direct investment,
• a definition as to whether the foreign direct investment may have an impact on security or public order,
• the definition and submission of evidence demonstrating the veracity of the information referred to in the preceding bullet points.
The ZSInv, compared to the ZIUOOPE, introduces a two-step procedure:
Stage 1: The Notification Commission of the Ministry carries out a preliminary examination and, if the transaction meets the conditions, issues an opinion in which it assesses whether or not the transaction has a significant impact on public order and security in the Republic of Slovenia. On the basis of such assessment, the Ministry then issues a decision approving the foreign direct investment or a decision to initiate a second-stage review procedure.
Stage 2: The Expert Group conducts the screening process and submits an opinion to the Ministry with a recommendation to approve or reject the FDI no later than two years after the initiation of the screening process. On the basis of the opinion, the Ministry issues a decision either approving, granting limited approval by setting conditions for its implementation, or prohibiting the FDI. The Ministry must issue the decision within two months of the Expert Group's opinion.
5. INTRODUCTION OF A NEW BODY, THE NOTIFICATION COMMISSION AND RENAMING OF THE FORMER COMMISSION TO AN EXPERT GROUP
The ZSInv introduces an additional Notification Commission, which carries out a preliminary examination and gives an opinion on the initiation of the foreign direct investment review procedure. The Commission as known under the ZIUOOPE has been renamed the Expert Group. The tasks or competences of the latter remain unchanged, i.e. it carries out the screening procedure and submits an opinion on the foreign investment to the Ministry.
6. A PRECISE DEFINITION OF THE CONDITIONS FOR MAKING A FOREIGN DIRECT INVESTMENT IF AN IMPACT ON THE SECURITY OR PUBLIC ORDER OF THE REPUBLIC OF SLOVENIA IS ESTABLISHED
Both the ZIUOOPE and the ZSInv include conditions for the foreign investment that may be imposed in order to mitigate or prevent the identified impact of the transaction on the security and public order of the Republic of Slovenia, whereas the ZSInv defines them in far greater detail:
• prohibition on the sale of copyrights and related rights owned by the target company or the acquired company or the newly established company to natural or legal entities from third countries,
• the prohibition on the sale of certain tangible and intangible fixed assets acquired through direct foreign investment,
• a prohibition on business cooperation with a legal or natural person affecting public policy or security in any of the Member States, where this has been established either by a Member State or by the European Commission,
• an obligation to reduce the shareholding to be acquired in the target company or in the acquired company or in a newly created company,
• an undertaking that certain parts of the target company or the acquired company or the newly created company will be retained in the Republic of Slovenia,
• an obligation to transfer certain sensitive activities from the target company or the acquired company or the newly created company in the Republic of Slovenia to another legal entity established in the Republic of Slovenia,
• prohibition of certain practices on the market of the Republic of Slovenia,
• the obligation to carry on the original business of the target company or the acquired company or the newly created company in the Republic of Slovenia,
• the obligation to provide goods and services from the original activity of the target company or the acquired company.
The ZSInv further stipulates that these conditions may be imposed for a fixed period of time, which may not exceed 10 years.
The ZSInv introduces a fine of between EUR 100,000 and EUR 500,000, which may be imposed on a legal person, and a fine of between EUR 2,000 and EUR 10,000 may also be imposed on its legal person's responsible persons, if:
• the legal person fails to register the foreign direct investment within 15 days,
• it fails to disclose all the information in the notification of the foreign direct investment,
• does not provide additional explanations or justifications within the time limit at the request of the Notification Commission or the Expert Group,
• fails to comply with the prohibitions or conditions for making a foreign direct investment,
• fails to report to the Ministry on the measures taken to comply with the conditions imposed on it for the implementation of the transaction.
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