The Development: The new Belgian foreign direct investment screening law ("FDI Regime") imposes preclosing filing requirements on non-EU investments into various industry sectors in Belgium, including energy, electronic communication, tech, and defense.
The Background: Belgium joins a growing number of European Union ("EU") countries with broad FDI regimes, adding another layer of complexity to multijurisdictional deals. Within the Benelux region, a new FDI regime went into effect in June 2023 in the Netherlands, and Luxembourg's is expected to take effect on September 1, 2023.
Looking Ahead: Buyers considering investments in Belgian targets must evaluate whether the mandatory filing regime covers the transaction. If so, the parties must suspend closing until members of the Interfederal Screening Commission ("ISC") clear the transaction. Transacting parties must therefore consider how the FDI Regime affects transaction timelines, deal completion risk, and allocation of risk in the deal documents.
Under the FDI Regime, parties must report a transaction involving a non-EU investor if the acquisition results in control over, or certain levels of voting rights in, a Belgian target that operates in a broad list of industry sectors. The FDI Regime also features revenue-based filing thresholds, depending on the sectors involved.
An individual is a non-EU investor if the individual's main residence is outside the EU. Entities incorporated outside the EU, or having an ultimate beneficial owner whose main residence is outside the EU, also qualify. The Belgian FDI Regime contrasts with other EU Member State FDI regimes that treat EU investors from other Member States as foreign investors subject to the filing obligations.
First, the FDI Regime covers direct and indirect acquisitions of at least 25% of voting rights in Belgian targets whose activities relate to:
- Critical infrastructure for energy, transport, water, health, electronic communication and digital infrastructure, media, data processing or storage, aerospace, defense, election or financial infrastructure, and sensitive facilities;
- Technologies and raw materials that are essential for safety (including health safety), defense and public security, military equipment, dual-use items, or technologies of strategic importance (including IP) regarding artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, and nano technologies;
- Supply of essential inputs, including energy and raw materials, and food security;
- Access to or control of strategically sensitive information and personal data;
- Private security; or
- Freedom and pluralism of the media.
There is no revenue-based filing threshold corresponding to the above sectors.
Second, acquisitions of at least 25% of the voting rights in a Belgian entity whose activities pertain to technologies of strategic importance in the biotech sector will be reportable if the same entity's revenues exceed EUR 25 million (approx. USD 26.3 million).
Finally, the FDI Regime covers acquisitions of at least 10% of the voting rights in Belgian targets that are active in the defense, energy, cybersecurity, digital infrastructure, or electronic communication sectors, where those entities' revenues exceed EUR 100 million (approx. USD 105.3 million).
Importantly, the FDI Regime does not have an exemption for internal reorganizations. In other words, a company may have to report an internal reorganization if the transaction otherwise meets the filing requirements even if the ultimate parent entity does not change.
Mandatory Notification and Review Timeline
Any investment subject to the application of the FDI Regime will require preclosing approval by the ISC, a body composed of members representing the nine levels of Belgian government (Federal, Regions, and Communities).
Similarly to merger control, submission of a notification opens a prenotification phase during which an assessment of the completeness of the filing is made. A complete filing is then subject to a 30-calendar day assessment phase, during which members of the ISC will assess whether the investment should be referred to the in-depth screening phase. That will occur when at least one ISC member identifies concrete indicia that the transaction may affect safeguarded interests. The in-depth screening phase involves a concrete assessment of the impact of an investment on such interests, i.e., Belgian public order, national security, and the strategic interests of the Belgian federal and federated entities. The in-depth screening phase can theoretically be completed within 28 calendar days, but most reviews likely will extend for several months. Notably, requests for information and remedy negotiations suspend statutory timelines.
As is the case in other EU FDI regimes, the ISC is likely to clear the vast majority of FDI reviews within the 30-calendar day assessment phase.
Sanctions for Failure to Comply
Foreign investors that fail to notify a reportable transaction may face fines of up to 30% of the value of the investment. In addition, the ISC has authority to review consummated transactions for up to five years after closing. That call-in power also covers reportable investments signed prior to July 1, 2023, up to five years from closing.
Three Key Takeaways
- Non-EU businesses looking to acquire at least 10% of the voting rights in a Belgian target may have to obtain preclosing approval under the new Belgian FDI Regime.
- New transactions are already subject to the mandatory filing requirements. Deals signed prior to July 1, 2023, that meet the filing criteria may be subject to the authority's call-in powers in Belgium for up to five years from the closing date.
- Businesses should consider the potential application of the Belgian FDI Regime early in the deal process. Especially as the ISC ramps up, non-EU investors are likely to receive information requests, including in non-issue deals, which will suspend the statutory review timelines.
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.