Luca Amato (Fenech and Fenech Advocates) authored this publication

Malta's foreign direct investment (FDI) regime was introduced in 2020 by virtue of the National Foreign Direct Investment Screening Office Act (Chapter 620, Laws of Malta) (the "Act"), which in turn implements the provisions of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019, establishing a framework for the screening of foreign direct investments into the Union.

The Act establishes the Maltese FDI screening office (NFDISO), whose role is to exercise regulatory functions regarding the screening of FDIs in Malta on grounds of security or public order. To this end, the NFDISO's functions inter alia include: (i) establishing a mechanism, rules and procedures to screen FDIs carried out in Malta that may affect the security or public order of Malta; (ii) commencing ex officio investigations on investments that may qualify as FDIs; (iii) carrying out screening procedures; (iv) assessing, investigating, authorizing, conditioning, prohibiting and unwinding FDIs on grounds of security or public order in Malta; (v) reporting FDI data to the European Commission on an annual basis; (vi) establishing, implementing and participating in the cooperation mechanism established in Regulation (EU) 2019/452; and (vii) liaising with responsible authorities of third countries on issues relating to the screening of FDIs.

The provisions of the Act cover certain FDIs made or planned to be made in Malta and applies to all persons involved in such FDIs, including foreign (non-EU) investors aiming to establish or to maintain lasting and direct links in order to carry out economic activity in Malta, and include investments that enable effective participation in the management or control of a company carrying out an economic activity in Malta and any investments made pursuant to a public procurement process. It does not, however, apply to portfolio investments.

"Foreign investor" is defined as a natural person or an undertaking of a third (non-EU) country intending to make or having made an FDI in Malta.

FDIs that fall under the jurisdiction of the Act need to be notified to the NFDISO, which will, in certain cases, determine that the transaction shall be subject to screening in terms of the screening mechanism outlined in the Act.

Who files

The Act obliges foreign investors and all persons involved in an FDI that falls under the jurisdiction of the Act to notify NFDISO regarding the investment and to provide certain information regarding the entity carrying out the investment. Such information includes the ownership structure and ultimate beneficial ownership of the investor, the value of the investment, the products, services and business operations of the foreign investor, and the source of funds for the investment. Additionally, the NFDISO may request any other information as it may reasonably require for the proper performance of its functions under the Act.

The notification is made via NFDISO's online portal and must be signed by a company director of the foreign investor and the relevant advisory firm or agent assisting with the notification.

Types of deals reviewed

The Act covers certain foreign direct investments made or planned to be made in Malta. A "foreign direct investment" is defined as an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links to carry on an economic activity in Malta, including investments that enable effective participation in the management or control of a company based in Malta.

"Management or control" is in turn defined in the Act as the possibility of exercising decisive influence on an undertaking, in particular: (a) through ownership or the right to use all or part of the assets of an undertaking; or (b) through rights or contracts that confer decisive influence on the composition, voting or decisions of the organs of an undertaking; provided that even persons or undertakings not holding such rights or entitled to such rights under the contract concerned are deemed to have acquired control if they have the power to exercise the rights deriving therefrom.

The Act outlines a number of scenarios where mandatory notification of FDIs is required, as follows: (a) where an investment that affects any of the factors or activities mentioned in the Schedule of the Act is planned to be carried out in the future; (b) where, having carried out an investment in Malta, the business activity of a foreign investor is changing to one that affects any of the factors or activities mentioned in the Schedule of the Act; (c) where, having carried out an investment in Malta that affects any of the factors or activities mentioned in the Schedule, the ownership structure of an investor changes such that at least 10 percent becomes owned by foreign investors; (d) where, having carried out an investment, the direct or indirect controlling interest of a company or a group company changes and passes onto a foreign investor.

When the foreign investor is a body corporate, then the obligation to notify the investment to the NFDISO in the above instances is triggered where at least 10 percent of the share in the investor is directly or indirectly owned by a third (non-EU) country national or an undertaking of a third country.

The activities and factors that are mentioned in the Schedule of the Act are considerably wide and, when considered together, capture a substantial number of FDI investments.

The activities are:

• Critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure
• Critical technologies and dual-use items as defined in point 1 of Article 2 of Council Regulation (EC) No. 428/2009 (15), including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies
• Supply of critical inputs, including energy or raw materials, as well as food security
• Access to sensitive information, including personal data, or the ability to control such information and
• The freedom and pluralism of the media

The factors to be considered are:

• Whether the foreign investor is directly or indirectly controlled by the government of a third country, including state bodies or armed forces, through ownership structure or significant funding
• Whether the foreign investor has already been involved in activities affecting security or public order in an EU Member State or
• Whether there is a serious risk that the foreign investor engages in illegal or criminal activities

Scope of the review and sanctions

Once an investment has been notified to the NFDISO, it shall within five (5) days determine whether the investment will be subject to screening. In reaching its decision, the NFDISO will consider whether the investment may affect the security or public order of Malta on the basis of the aforementioned activities and factors. In making its assessment, the NFDISO may request any necessary additional information from the foreign investor and may seek the clarifications and explanations that it may deem necessary for its deliberations and conclusions.

Where the NFDISO concludes that the foreign direct investment shall not be subject to screening, it shall, within five (5) business days from the date of its decision, inform the foreign investor of its decision.

If the NFDISO concludes that the foreign direct investment shall be subject to screening, it shall inform the foreign investor within five (5) business days from the date of its decision, and trigger the cooperation mechanism in terms of articles 6 and 7 of Regulation (EU) 2019/452, and it shall, within sixty (60) calendar days, determine whether the foreign direct investment may affect the security or public order of Malta.

Where the NFDISO concludes that the foreign direct investment affects the security or public order of Malta, it may condition, prohibit or unwind such an investment, as the case may be, and it shall inform the foreign investor in writing of its decision. The notification of the decision shall include the NFDISO's reasoning and justification. In such cases, the investor shall not be entitled to claim any compensation or reimbursement.

If the NFDISO determines that an investment shall be subjected to one or more conditions, it shall permit the foreign investor to take all necessary measures in order to satisfy the said conditions within a reasonable time period. Should the investor fail to satisfy these within the prescribed period, the NFDISO shall prohibit or unwind the investment.

Similarly, if an investment is declared unwound, the NFDISO shall permit the foreign investor to reverse or modify the investment within a reasonable time period. Failure to do so within the prescribed time would entitle the NFDISO to commence judicial proceedings before the Civil Court for the unwinding of the investment.

The NFDISO is also empowered by law to impose administrative penalties ranging from not less than €1,000 for failure to provide information, to not more than €100,000 for providing incorrect, inaccurate or incomplete information.

Appeals to any decision of the NFDISO or the imposition of administrative penalties are allowed by bringing an action before the Administrative Review Tribunal.

Due to the broad wording of the law, the Maltese FDI law covers a substantial number of transactions, particularly in the context of the notification requirement. This is because the activities that are mentioned in the Schedule are drafted in a broad manner, particularly under limb (a) which covers sectors ranging from energy and health, to more commonplace industries such as media, communications and data processing or storage.

Nonetheless, the number of investments that are actually subjected to screening have been low because the NFDISO considers whether the investment is occurring in a company that impacts the security or public order in Malta.

How foreign investors can protect themselves

Prudent foreign (non-EU) investors would do well to take a cautious approach and notify the NFDISO whenever an investment is planned in a Maltese business that operates in the relevant sectors. Maltese law does not outline a specific point when the investment needs to be notified. In practice, it makes sense to notify the NFDISO whenever an investment is reliably deemed to occur, such as the period immediately following the signature of a share purchase agreement. Indeed, it is nowadays commonplace to include the obtaining of regulatory consent by the NFDISO as a condition precedent to completion in such agreements.

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