Johannes Barbist and Regina Kröll (Binder Grösswang) authored this publication

Under the previous Austrian FDI regime as set out in the Foreign Trade Act (Außenwirtschaftsgesetz), only 25 cases were reviewed over a period of eight years. This has changed significantly with the introduction of the new FDI regime under the ICA: In the first year alone, the competent authority, the Federal Minister of Labor and Economy (Bundesminister für Arbeit und Wirtschaft, the BMAW) has reviewed 70 cases.

Recent updates

• In 2022, the BMAW had to review the first transaction in the defense sector
• As far as we know, the BMAW did not yet block a transaction, but various cases were only cleared with commitments
• Part 1 Item 6 of the Annex to the ICA (research and development in regard to medicinal products, vaccines, medical devices and personal protective equipment) was introduced as a response to the COVID-19 pandemic and supposed to be in effect until December 31, 2022. The legislator decided to prolong the effect of this provision until December 31, 2023.

 Who files

The Austrian FDI regime applies to persons (natural and legal) who are not citizens of or do not have their seat/headquarters in the EU, the EEA or Switzerland, and are therefore deemed a Foreign Investor.

The primary responsibility to submit an application for clearance under the ICA rests with the acquirer (i.e., the Foreign Investor).

In order to determine whether an investor would be qualified as "foreign" within the meaning of the ICA, the BMAW looks beyond the direct acquirer and its ultimate beneficial owner (UBO) —any non-EU, non-EEA or non-Swiss entities or persons in the ownership structure up to the UBO (vertical chain) may result in the investor being deemed as a Foreign Investor. In other words, while the direct acquirer may not be considered "foreign" (because it is EU/EEA/Switzerland-based), a foreign investment still occurs where an entity at any level in the ownership structure or the UBO is a non-EU, non-EEA or non-Swiss entity or person.

The Austrian target has a separate obligation to notify the BMAW if the investor does not submit an application for FDI approval in regard to the specific transaction.

Types of deals review

For an investment to trigger Austrian FDI control, referred to as a "Relevant Investment," the following conditions have to be met cumulatively:

• An investment by a Foreign Investor. Publicly listed companies are privileged under certain circumstances. Based on a decision by the BMAW, the (many) foreign shareholders of a publicly listed company need not be taken into account provided that such foreign shareholders do not play any active role whatsoever in the transaction and have not entered into any kind of agreement on a shareholder level that points toward a joint acquisition of the Austrian target or a joint exercise of voting rights (directly or indirectly) over the Austrian target
• The target is a company or business in Austria pursuing a commercial activity that may pose a threat to security or public order, including crisis prevention and services of public interest, within the meaning of Article 52 and 65 TFEU and
• The investment concerns the direct or indirect acquisition of
  • An Austrian business or legal entity
  • Material parts of an Austrian business resulting in the acquisition of a controlling influence over such parts of an Austrian business
  • A shareholding with which at least 10 percent of the voting rights (if the target is active in a highly sensitive sector) or 25 percent of the voting rights (if the target is active in a "normal" sensitive sector) is reached or exceeded
  • Controlling influence over an Austrian business or legal entity

The ICA does not apply to greenfield investments. The ICA would only apply to greenfield investments if they are connected with a notifiable investment. The acquisition of "mere" branch offices or (material) parts thereof also does not come within the ambit of the ICA according to the administrative practice of the BMAW (see also FAQs BMAW Investment Control).

Furthermore, clearance under the ICA is not required if the target is a micro-enterprise (de minimis rule). A micro-enterprise is defined as an enterprise

• That employs fewer than ten persons and
• Whose annual turnover and/or annual balance sheet total does not exceed the threshold of €2 million

Scope of the review

The scope of the Austrian FDI regime is very wide (and its interpretation by the BMAW arguably even wider), in particular in regard to the sectors considered sensitive. In its Annex, the ICA distinguishes between

• Particularly sensitive sectors as set out in part 1 of the Annex to the ICA (e.g., defense goods and technologies; operation of critical energy infrastructure; operation of critical digital infrastructure, in particular 5G infrastructure; water; research and development in regard to medicinal products, vaccines, medical devices and personal protective equipment). In case an investment concerns a particularly sensitive sector, the relevant threshold of voting shares is 10 percent and
• "Normal" sensitive sectors as set out in part 2 of the Annex to the ICA (e.g., critical infrastructure, including information technology, health, data processing and storage, etc.; critical technologies and dual-use goods, including artificial intelligence, robotics, semiconductors, etc.; security of supply of critical resources, including energy supply, food supply, etc.; access to and the ability to control sensitive information, including personal data). In case an investment concerns a "normal" sensitive sector, the relevant threshold of voting shares is 25 percent

While the term "critical infrastructures, technologies and resources" is defined in the Annex to the ICA, the sectors explicitly listed in the Annex within the respective category of critical infrastructures, critical technologies or critical resources are per se considered to be critical. The degree of criticality is therefore not part of the jurisdictional assessment as to whether an investment is notifiable to the BMAW.

Whether an investment may pose a risk to security or public order is part of the material assessment of the BMAW. In assessing this risk, the BMAW mainly focuses on the following two factors:

• Investor-related factors, i.e., whether the Foreign Investor is directly or indirectly controlled by the government, including state bodies or armed forces of a third country, including through ownership structure or significant funding; whether the foreign investor has already been involved in activities affecting security or public order in a Member State; or whether there is a serious risk that the Foreign Investor engages in illegal or criminal activities and
• The effect of the investment in the sectors listed in the Annex to the ICA. In this context, the BMAW looks at the nature and scope of the Austrian target's activities, including the products and/or services offered, the position on the market, customers, competitors and substitute products.

The BMAW's material assessment is not limited to key national security sectors (e.g., the defense or energy sector), but has a much broader focus, taking into consideration security of supply in a wide variety of sectors. Due to the long list of sensitive sectors and the broad categories, a vast number of investments is subject to the ICA and subject to a requirement to submit an application for approval.

A notifiable Relevant Investment may only be implemented following approval by the BMAW. As long as FDI clearance has not been granted, a notifiable Relevant Investment (the underlying transaction agreement) is deemed to have been concluded subject to the condition precedent that approval is granted.

A notifiable Relevant Investment that is carried out without FDI clearance is void under civil law until FDI clearance has been obtained.

If the BMAW becomes aware of a notifiable Relevant Investment for which the Foreign Investor has not applied for FDI approval, the Foreign Investor is requested to submit an application within three business days from receiving notice from the BMAW. If no such application is timely submitted, the BMAW has to initiate an official approval procedure on its own account and inform the Foreign Investor accordingly. The BMAW often consults the Austrian target to check relevance and notifiability of a transaction under the Austrian FDI regime.

Under the ICA, the following outcomes are conceivable:

Phase 1:

• Decree that no approval procedure will be initiated because such procedure would be contrary to obligations under union or public international law
• Decree that there are no objections to the acquisition
• Approval by operation of law (legal fiction) in Phase 1 after
• expiry of the one-month period (national level)

Phase 2:

• Decree clearing the transaction
• Decree clearing the transaction subject to commitments. The BMAW may impose commitments unilaterally
• Decree prohibiting the transaction
• Approval by operation of law (legal fiction) in Phase 2 after expiry of the two-month period (national level)
• In the first 15 months of the new Austrian FDI regime (July 15, 2020 to September 30, 2021), the BMAW reviewed and completed 70 cases. Out of these 70 cases, nine were certificates of non-jurisdictions (Unbedenklichkeitsbescheinigungen) and 61 were full applications for FDI clearance. Out of these 61 full applications, 58 were approved without commitments and three were approved with commitments. No investment was prohibited or cleared by operation of law (legal fiction).

Review process timeline

FDI proceedings in Austria take on average two-and-a-half to three months and may take up to five-and-a-half to six months.

• Phase 0: Under the Austrian FDI regime, the EU cooperation mechanism is a mandatory step before national proceedings are initiated. Phase 0 takes 35 calendar days on average (but may take considerably longer in case of comments and/or questions from the EC or other Member States). This does not include the time the BMAW takes for notifying the EC that a foreign direct investment within the meaning of the ICA is being made in Austria (which may take up to ten business days)
• Phase 1 (national proceedings): Phase 1 takes one month and typically starts upon conclusion of the EU cooperation mechanism
• Phase 2 (in-depth examination): Phase 2 takes two months. Phase 2 proceedings are only initiated where the BMAW sees the need for further clarification or has substantive concerns.
• RFIs in Phase 1 and Phase 2 do not stop the clock unless the BMAW deems the filing incomplete upon initial review (prior to kicking off Phase 0). Usually, the BMAW uses the review periods (close) to the maximum allowed.

How foreign investors can protect themselves

Foreign investors should:

• start to think about FDI early on in the transaction planning process
• perform a multi-jurisdictional FDI analysis. Since trigger events and thresholds differ greatly, a diligent multi-jurisdictional analysis is therefore key.
• Pay attention to the "domino effect" and map out a filing strategy. FDI authorities across the EU obtain information about (planned) investments out of the EU cooperation mechanism and other (public) sources, such as merger control filings. Some Member States, including Austria, submit every application to the EU cooperation mechanism. Where an investment is filed in one EU jurisdiction, a cautious approach should be taken in regard to other Member States. If a filing requirement is identified in a number of jurisdictions, a joint filing strategy should be adopted
• Factor in the FDI risk (a prohibition and/or the imposition of (economically) unfavorable commitments) in the contractual framework (CP, long-stop date).

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