In light of the volatility of financial markets accelerated by the COVID-19 pandemic, and rising concerns over the heightened risk of buyouts of key national assets and industries, the issue of foreign direct investment (FDI) screening has taken a more prevalent position on the regulatory landscape in recent months. The development towards establishing tighter FDI control and monitoring regimes reflects an international and European trend. It is particularly with regard to host countries located in Central Eastern Europe that a manifestation of numerous substantial legislative activities can be observed.

As recently as 22 May 2020, the government of Poland introduced a new draft legislation intended to offer additional safeguards to national companies throughout the duration of the current pandemic. This was followed shortly thereafter by a temporary decree that entered into force in Hungary on 26 May 2020. Austria is no exception in this regard. As of 25 July 2020, a new Investment Control Act (ICA) (Investitionskontrollgesetz, InvKG) has entered into force. The ICA replaces the previous FDI regime that had been in place since 2013, specifically section 25a of the Foreign Trade Act 2011, BGBI. I No. 87/2020 (Außenwirtschaftsgesetz, AußWG). While previously criticised for its negligible role in M&A transactions, the new ICA significantly expands the number of industry sectors subject to regulation, lowers intervention thresholds and transposes obligations introduced under the EU-FDI Screening Regulation (EU) 2019/452 (EU-FDI Regulation), which have both take concurrent effect on 11 October 2020.


FDI is an area of investment practice that is mutually beneficial to host states as well as investors. While for the former, FDI serves to attend to national interests including economic development, technological advancement and wealth distribution, the latter are granted access to new markets enabling them to expand and diversify their business portfolios.

Beyond attracting considerable capital flows, FDI has also prompted a wide array of legal issues, particularly with regard to investment protection, assurance of fair, transparent and equitable treatment as well as the enforcement of guarantees, e.g. compensation for expropriation. Since these standards carry little weight in absence of a dispute-settlement framework it is essential for legal counsel, particularly in this transitional period, to offer competent and expeditious assistance in their advisory practice on relevant foreign investment control rules, screening mechanisms and their implications.

This article outlines the key changes under the ICA, focusing specifically on its scope, threshold, approval and filing requirements as well as sanctions introduced to counteract violations of approval conditions. By way of comparison, the article will also touch upon recent amendments to the German legal framework for foreign investment control.



The ICA introduces considerable changes in terms of its expansion of critical technology and infrastructure sectors that are subject to prior FDI approval. It differentiates between two broad categories of activities that may affect security and public order, namely transaction of 'highly sensitive' (Part II of Annex to ICA) and 'other' nature (Part II of Annex to ICA). The specific areas that fall under each grouping are detailed further below.

a. Investors under the ICA

A party qualifies as a foreign investor under ICA, provided the individual is:

  • A non-EU, non-European Economic Authority, non-Swiss individual;
  • A legal entity with central administration or registered office outside the EU, EEA or Switzerland.

The ICA does not require foreign investors to engage in commercial or entrepreneurial conduct, thus causing private individuals or funds to fall within the ambit of its provisions.1

b. Filing Requirement

In order for the ICA mandatory filing requirement to be triggered a foreign investor must carry out a direct/indirect investment in an Austrian undertaking (the 'target'), involving:

  • The acquisition of decisive influence/control;
  • The acquisition of voting rights amounting to a minimum share threshold of:
    • 10%, 25% or 50% of voting rights are reached/surpassed ('highly sensitive sectors');
    • 25% or 50% of voting rights are reached/surpassed ('other sectors');
  • The acquisition of substantial/material assets of an Austrian target.

These prior approval requirements are not applicable to micro-companies or start-ups with an annual revenue of less than EUR 2 million and engaging fewer than ten employees (de-minimis exemption).


With an export-oriented national economy, Germany relies strongly on free market access and transnational trading. While seeking to protect against existing socio-economic concerns triggered by the COVID-19 pandemic, plans to reform its established FDI mechanism can be traced back to a period preceding the coronavirus outbreak in Germany. In January, the Ministry of Economic Affairs and Energy presented its draft legislation advocating for a stricter control approach on non-European investors. This proposal was passed by the German Federal Government on 8 April 2020 and adopted by Parliament on 18 June 2020, leading to an amendment of the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung, AWV). The government's commitment to a substantive reform of its FDI regime is equally reflected by the expeditious introduction of the draft amendments to the Foreign Trade and Payments Act (Außenwirtschaftsgesetz, AWG), approved on 20 May 2020 and taking effect on 3 June 2020.

Pursuant to the new AWG amendments, investments with a pending regulatory clearance are provisionally ineffective until approval has either been granted or rejected. For the duration of the screening, parties are prohibited from certain actions, including allowing investors to exercise voting/shareholder rights, granting transactions pertaining to the distribution of target profits or affording them access to sensitive target-related information. Under the provisions of the AWV, the transactions subject to screening have been significantly extended. Beyond share deals they now also cover asset deals and acquisitions.



a. Threshold

One of the most severe changes brought about by the new ICA, is the decrease of the control-relevant voting rights threshold from 25% to 10% that is to be applied in relation to highly sensitive sectors. These include:

  • Defence equipment and technology;
  • Critical energy infrastructure;
  • Critical digital infrastructure (5G infrastructure in particular);
  • Water;
  • Systems enabling Austria's data sovereignty;
  • Research and developments involving medical equipment, vaccines, personal protective gear, pharmaceuticals (temporary provision introduced until 31 December 2022).

For investments, other than those categorized as sensitive, the voting rights threshold remains at 25% and 50% and focuses on investments in the following areas:

  • Critical infrastructure essential for purposes of upholding societal functions, e.g. energy, health, food, telecommunication, transportation;
  • Critical technologies and dual-use items as defined in EU Regulation 428/2009, e.g. nano/-biotechnology, cybersecurity, quantum and nuclear technology;
  • Supply and critical inputs, e.g. energy and raw materials, vaccines, food security;
  • Access to and ability to control sensitive information including personal data;
  • Media freedom and pluralism.

b. Approval Procedure

In Austria if an approval is required under the new ICA:

  • The acquiring person must send a written and detailed application to the Federal Minister of Digitalization and Economic Affairs ('competent secretary') immediately following the signing of the transaction agreement or its conclusion (public offer: submission must be made once declaration of intention to publish bid is made).
  • Notification duties lie primarily with the acquirer, yet if the latter fails to make the relevant submission, the ICA foresees a reporting duty for the target.
  • The notification requires specific information on matters such as the acquirer's and target's business activities, transaction summary and details concerning funding sources.
  • The competent authority may exercise rights of access and review and is given extensive powers to initiate approval proceedings ex officio if learning retrospectively that no notification was provided albeit being required.
  • With the onset of the approval procedure, the competent authority must notify the European Commission, which will lead to the commencement of a 35-day consultation period between EU Member States and the EU Commission to share comments on the contemplated transaction.
  • Within a one month period thereafter, the competent authority is required to either:
    • Approve the investment; or
    • Initiate a detailed examination, triggering the commencement of a two-month phase in which the competent authority must classify the investment as prohibited, approved or approved subject to commitments.
    • Provided no decision has been made, the transaction is deemed to have been authorized.
  • A 'clearance certificate' or 'non-jurisdiction letter' may be obtained (Unbedenklichkeitsbescheinigung) upon request, confirming that the transaction concerned is not covered under the ICA mandatory approval requirement. A review of such an application will be conducted within a timeframe of up to two months.


a. Threshold

  • AWG: While the AWG formerly required an actual or serious risk to public order and/or security to be present for the FDI screening requirement to be triggered, investments now only need to be likely to affect these interests. Investments will also include public order and/or security interests of other EU Member States and national security interests of Germany's defence sector.
  • AWV: The AWV introduces additional sensitive business sectors that are subject to notification. These pertain in particular to healthcare, the manufacturing/marketing of personal protective equipment, vaccines and antibiotics as well as medical devices to treat infectious diseases.

b. Screening Requirements

  • AWG: The screening process has been reduced to a two-month period after the relevant legal transaction has been reported and a four-month timeframe within which restrictions/qualifications may be imposed.
  • AWV: The criteria for screening foreign investments has been extended, requiring close examination of whether an investor is (in-)directly controlled by a non-EU government, governmental agency or third country military; has participated in activities that have had adverse effects on the public order and/or security of Germany or other EU Member States; or has engaged in illegal criminal activity as defined under section 123 of the Competition Act, the AWG or the War Weapons Control Act.2



Investments that constitute an endangerment to security and/or public order that require approval, yet have been implement (in full or part) in absence of it, will lead to the imposition of commitments, or a full/partial revocation provided its negative impact cannot otherwise be remedied. Undertaking foreign direct investments without the required approval or obtaining such approval on the basis of false or deceptive information is penalised by a one-year imprisonment sentence. Violations of information requirements give rise to a monetary fine of up to EUR 40 000.


For the duration of the screening investors may not exercise their shareholder rights directly or indirectly. Violations are punished by a custodial sentence of up to five years or a monetary fine.


The emergence of recent legislative changes is to be welcomed for reasons of establishing fair competition standards and enhanced protectionist mechanisms against threats to public order, security and health. Yet, notwithstanding the importance of defending national assets and industries from opportunistic acquisitions by foreign investors, transaction certainty (particularly on FDI screening rules, requirements and regulations) is and continues to be of strategic importance for investors. It is thus paramount to discourage the development of a 'patchwork' of independent jurisdictional FDI screening regimes and notification obligations. In order to reconcile legitimate national interest with those investors that seek to consummate proposed transactions, the creation of a transnational coordination mechanism must be prioritized. Many of the recently implemented laws and regulations have embraced this move by seeking to align national FDI laws with the EU FDI Regulation. While the latter does not impose a duty to introduce national screening systems, it has created a legal framework that allows EU Member States to exchange thoughts on anticipated foreign investments in other jurisdictions. It marks an initial step towards a genuine, streamlined and centralized pan-European approach on FDI screening.

The new Austrian and German approval regimes are expected to impact M&A practice considerably. With the likely rise in the number of approval procedure filings (potentially also as a precautionary measure), the lowered voting right threshold (sensitive sectors), a wider industry spectrum subject to screening as well as delays resulting from the extension of the competent authority's review period, FDI transactions will require careful planning and structuring. The duty now lies with practitioners to monitor these developments closely and continuously so as to enable investors to assess risks and adopt relevant mitigation strategies if needed.


1. Zandler, D.; Horaceck, V. (2020) The new Austrian Investment Act – increased supervision of foreign direct investments in Austria. CMS eAlerts. Available at: [accessed 03.10.2020].

2. Gesley, Jenny. "Global Legal Monitor." Germany: Rules for Foreign Investment Control Tightened | Global Legal Monitor, 16 Sept. 2020, [accessed 03.10.2020].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.