Foreign direct investment (“FDI”) within the European Community (“EU”) contributes to competitiveness, enhances employment and drives economic growth. It generates capital, encourages technological innovation and expertise and, significantly, also opens EU member states to the export of goods and services. The benefits of FDI can however, sometimes be neutralised by the risks which it could present to the security and public order of Members States and therefore, indirectly, to the EU as a whole.

EU Regulation 2019/452 (“the Regulation”) was introduced to establish a framework for the screening of foreign direct investment into the union. The main objective of the Regulation is to provide legal certainty amongst Member States which stand to benefit from FDI as to the risks which this may pose to security and public order, and to ensure that there is EU wide co-operation in tackling these risks.

The Regulation does not replace existing screening mechanisms within the EU but rather enhances their effectiveness. Whilst the Regulation is applicable to all Member States, Malta transposed its terms into Act LX of 2020, the ‘National Foreign Direct Investment Screening Office Act', Chapter 620 of the laws of Malta (“the Act”). The provisions of this Act extend to all foreign direct investments(“FDIs”) made or planned to be made within the jurisdiction of the Maltese islands and to all persons involved in foreign direct investment schemes, including those aiming to establish or maintain lasting and direct links for the pursuance of an economic activity in Malta. These investment schemes include investments which enable effective participation or control of a company carrying out an economic activity but exclude portfolio investments.

The Acts establishes the National Foreign Direct Investment Officer (“the Office”). Pursuant to the aims set forth under the Regulation, the Office is tasked with various duties and functions. These include, amongst other things, the setting up of mechanisms for the screening of FDIs in Malta which might affect the security or public order within the jurisdiction, as well as acting as a regulator and supervisory authority 1Article 9 (Act).

The Act imposes upon FDIs an obligation to notify the Office with information which is necessary for the proper execution of its functions under the Act, including but not limited to, whether factors mentioned under the schedule to the Act are carried out or sought to be carried out in the future, as well as information regarding the entity itself2. The Office is then given a five-day period to determine whether the investment is subject to screening or otherwise.

Should it transpire that the FDI is subject to screening, the cooperation mechanism is triggered. This mandatory mechanism ensures that security and public order is maintained, to the extent that Member States have a duty to notify the Commission and other Member States of any FDIs undergoing screening. Should the outcome of the cooperation mechanism conclude that the investment affects the security and public order of the EU, the Office may direct the investment to condition, prohibit or unwind such investment as the case may be 3Article 12 (7) Act. Whilst the final decision lies solely with the Member State where the investment is being sought, other Member States may raise their concerns on the matter.

It is worth noting that persons who fail to notify the Office, refuse to provide information in accordance to the notification procedure of this Act and/ or provide inaccurate, incorrect or incomplete information, may, depending on the nature of the breach, be subject to administrative penalties of up to €100,000. The hefty penalties that accompany these obligations should serve as a stern warning to investors and their advisors in Malta to familiarize themselves adequately with the provisions of this Act with a view to ensuring strict compliance therewith.


1 Article 9 (Act)

2 Article 12 (Act)

3 Article 12 (7) Act

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.