The Foreign Investments Screening Act (the "Act") was passed by the Czech Parliament on February 3, 2021 and took full effect on May 1, 2021. It establishes rights and duties of foreign investors whose ultimate beneficial owner is from non-EU countries. It also set screening requirements in relation to certain target persons or owners of target objects in Czechia, which pose important security or public order concerns on the Czech Republic. The relevant entrusted authority remains the Czech Ministry of Industry and Trade (the "Ministry").

Recent updates

• First Annual Report on Foreign Investments Screening in the Czech Republic was published in 2022, and accounted for the time period between May 1, 2021 and April 30, 2022
• The Report does not share detailed information on specific cases but stated that among 12 cases that were investigated during the review period, no transaction had been prohibited by Czech authorities, although in two cases investors withdrew their filings
• The Ministry received
• 389 notifications of FDIs from EU Member State partners
• In line with the European Commission calling for a stricter assessment of Russian and Belarusian investments, the Ministry has been paying close attention to all security-relevant Russian and Belarusian FDIs and investors
• Following the onset of the Russian–Ukrainian conflict and due to the aftereffects of the COVID-19 pandemic, the number of FDIs in Czechia has dropped, though a rise is expected to occur in 2023

Who files

In general, the FDI investor should be the applicant. Request for approval of FDI or a consultation proposal is to be submitted in a form specified by Government Decree No. 178/2021 Coll., signed by a statutory representative of the applicant. Together with the application for the approval of FDI, the applicant shall submit a questionnaire containing additional information about the foreign investment. Under Section 33 and the Act No. 500/2004 Coll. of the Rules of Administrative Procedure as amended, the applicant may be represented in the proceeding of the investment screening by a proxy with power of attorney. The power of attorney needs to be signed by the party to the proceedings (applicant) —the signature does not need to be officially certified.

Types of deals reviewed

Details or substance of the deals reviewed have not been disclosed. However, based on information available in the public domain, cases that have been reviewed since the Act came into force included ten consultations, three of which proceeded to the full screening procedure. Two cases were reviewed in the screening regime only. In one case, the case was commenced through a filing by the investor as required by law; in the second case, the Ministry started the screening procedure on its own initiative.

Scope of the review

Foreign investment into the following targets will require prior approval from the Ministry:

• A target person who performs manufacturing, research, development, innovation or organization of the life cycle of military material, or into a target object through which the said activity is performed
• A target person who operates a critical infrastructure element determined by the relevant central administrative authority
• A target person who is an administrator of an information system belonging to the critical information infrastructure, administrator of a communication system belonging to the critical information infrastructure, administrator of an information system belonging to an essential service, or operator of an essential service
• A target person who develops or manufactures the dual-use goods, or target object through which such goods are developed or manufactured

Even if an FDI does not require prior approval, the Czech government has the power to commence ex post facto review of an FDI if it determines that such FDI may endanger the security or internal or public order of the Czech Republic. Such investments can be screened by the Ministry retrospectively for up to five years from the date of the investment. When deciding whether the FDI endangers the security of the Czech Republic or its internal or public order, the Ministry would usually look at the FDI's potential impact on, among other things:

• Infrastructure, including energy, transportation, water management and medical infrastructure, data processing and storing infrastructure, aviation and cosmic infrastructure, defense, and other infrastructure important for the security of the Czech Republic and its internal or public order, as well as access to land and property essential for the usage of such infrastructure
• Access to critical technologies and dual-use goods, including AI, robotics, semiconductor and cybersecurity technologies, aviation and rocket technologies, defense technologies, chemical technologies, energy-storing technologies, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies
• Access to supplies that are related to energy, raw material or food security
• Security of access to information that is important for the security of the Czech Republic or its internal or public order, including personal data, or ability to control this information
• Possibility of significant influence over public opinion through information spread by the media
• Critical information infrastructure, important information systems and essential services
• Non-military objects important for state security and
• Other technologies, malicious use of which poses a potential threat to the Czech Republic or its internal or public order, or any other factors important from the perspective of security of the Czech Republic or its internal or public order

Where the foreign investor has an intention to carry out an FDI that does not require prior approval under the Act, he/she may nonetheless ask the Ministry for a consultation as to whether it might be considered as endangering security, or the internal or public order of the Czech Republic. If the result of this consultation is negative, the Ministry will not screen this investment ex officio. The consultation is voluntary except for FDI directed at a target who owns a nationwide radio or TV broadcast license, or who is a publisher of a periodical that has an overall minimum average circulation of 100, 000 prints per day in the past calendar year.

Review process timeline

• Screening of FDI that was not found to pose a risk: 90 days
• Screening of FDI that has been identified as risk-prone, including discussion time required by the government of the Czech Republic: 135 days

These dates can be extended by 30 days in complicated cases. In certain cases, such as where the foreign investor has to enter into negotiations with the Ministry regarding conditions surrounding the FDI, the above timelines may be paused.

• Timeline for the Ministry to provide a response if an investor were to submit a request for consultation: 45 days

How foreign investors can protect themselves

• Potential investors are encouraged to take steps to confirm whether they fall under the definition of a foreign investor or whether the envisaged activity represents an FDI that requires prior review under the Act, before finalizing any transaction document
• If an investor is unsure about whether an FDI may bring security or public policy concerns to the Czech government, the investor may want to consider submitting a request for consultation so as to speed up any potential FDI application process

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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