Michal Pališin and Demian Boška (Aldertree legal s.r.o.) authored this publication

To date, the scope of foreign direct investment screening in Slovakia has been limited. The present screening mechanism is set out under Act No. 45/2011 Coll. on Critical Infrastructure, as amended (the CI Act), and applies only to certain transactions concerning operators of critical infrastructure and/or critical infrastructure assets in the energy (mining, electricity, gas, petroleum) and industry (pharmaceuticals, metallurgy, chemicals) sectors designated as critical infrastructure operators/assets by the Slovak government.

That said, the Slovak government recently enacted the Act on the Screening of Foreign Investments and Changes and Amendments to Certain Laws (the FDI Act). The FDI Act introduces a general FDI screening mechanism in Slovakia and enters into force on March 1, 2023.

Recent updates

• On November 29, 2022, Slovakia, for the first time, adopted full-fledged foreign direct investment legislation. Such legislation becomes effective March 1, 2023
• As opposed to the current practice of limiting screening of foreign investments to certain critical infrastructure sectors, the new FDI Act broadens the scope of foreign investments that must undergo mandatory screening. The FDI Act also establishes new screening procedures
• Following the entry into force of the FDI Act, investors will have to carefully consider whether their investments might fall under the ambit of the FDI Act and in such case, whether they constitute regular foreign investment or critical foreign investment, in which case different processes will apply. Given the novelty of the regime, it may take some time for procedures and practices to be fully settled, and investors should anticipate sufficiently long periods for the completion of the review.

Who files

With its entry into force on March 1, 2023, the FDI Act shall replace the currently applicable foreign investment screening under the CI Act, which shall consequently cease to apply.

Depending on the target company, the FDI Act distinguishes between a regular foreign investment (RFI) and a critical foreign investment (CFI). Mandatory pre-closing screening/approval shall only apply to the CFIs that cover transactions above a threshold percentage concerning target companies/assets in certain specific sectors such as firearms manufacturers and defense technology.

As for RFIs, they do not require mandatory pre-closing screening, but the Slovak government reserves the right to perform any ex post screening on such investments. Foreign investors may apply for voluntary screening in order to assess, in advance, whether a foreign investment might have a negative impact on security and public order in Slovakia or in the EU. By taking advantage of the voluntary screening, which is less rigorous compared to the mandatory screening, the foreign investor could limit any ex post screening of its investment.

Pursuant to the FDI Act, a foreign investor shall be responsible for the filing. The definition of a foreign investor generally covers a non-EU national or a legal entity whose registered seat is outside the EU. An EU national may also qualify as a foreign investor if he or she acts in concert with a non-EU national or entity, or if a third country finances the foreign investment.

Types of deals reviewed

Under the FDI Act, the mandatory pre-closing screening only applies to the CFIs. The definition of a CFI is rather extensive and encompasses investments concerning target companies and/or their assets from specific statutorily enumerated sectors.

At the time of the preparation of this article, the implementing regulation to the FDI Act has not yet been formally adopted and, therefore, there may be changes to the statutorily enumerated sectors mentioned above. Presently, the draft implementing regulation covers: (i) firearms manufacturers; (ii) entities active in military technology or materials research, development or maintenance; (iii) subjects of economic mobilization; (iv) dual-use items manufacturers or entities active in the research, development or maintenance of dual-use items; (v) entities active in the biotechnology sector; (vi) critical infrastructure operators (i.e., designated as such by the Slovak government); (vii) digital service providers; (viii) entities active in production, research, development of national means of cryptographic protection of information or components necessary for their security function, or which have produced such products and still possess them, if the product has been certified by the Slovak National Security Agency; (ix) entities holding broadcasting authorizations if the broadcasting is not of a local or community nature; (x) operators of content-sharing platforms whose turnover exceeds €2 mil.; (xi) publishers of a periodical publication that is not a community periodical, if it conveys communications of a journalistic nature to the general public; (xii) operators of a news web portal that is not a community periodical; and (xiii) press agencies.

On the other hand, RFIs (subject to voluntary screening only) are not confined to any specific sector.

The threshold for triggering the mandatory FDI review of a CFI is the acquisition of a 10 percent qualifying holding (i.e., voting rights or registered capital) or control over the CFI target company. In addition, an increase in the foreign investor's existing participation in the CFI target company that reaches the qualifying holding of 20 percent, 33 percent and 50 percent also qualifies as a foreign investment that has to undergo mandatory review.

Scope of the review

Under the FDI Act, foreign investments (both the CFIs and RFIs) shall be screened by the Ministry of Economy (Ministry) from the perspective of whether they might have a negative impact on security and public order in Slovakia or in the EU. When making the assessment, the Ministry shall consider the factors stipulated in Article 4 of Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing the framework for the screening of foreign direct investments in the Union (such as potential impact on critical infrastructure, supply of critical inputs, access to sensitive information, or freedom and pluralism of the media) as well as other facts related to the target entity and foreign investor, and the circumstances underlying the investment (in particular, previous economic activities of the foreign investor, entities controlling or controlled by the foreign investor, or financing of the investment).

When assessing the negative effect of a foreign investment, careful consideration shall be given to whether it might affect infrastructure necessary for the administration of justice and imprisonment, access to information important in terms of security and public order, including personal data, and other infrastructure, systems or supplies whose disruption or misuse might threaten security and public order.

Review process timeline

Under the FDI Act, the type of investment (CFI/RFI) will determine the type of screening process (mandatory/voluntary) and consequently, the review process timeline.

For the mandatory screening process, the Ministry has 130 days to complete its screening of the application. If the Ministry does not issue a decision on the approval or conditional approval of the investment, or it does not submit its opinion on the investment's negative impact to the Slovak government within 130 days of the commencement of the mandatory screening, it shall be deemed that the Ministry has approved the foreign investment.

With respect to RFIs, a foreign investor may, but is not required to, file an application for screening. If the Ministry does not commence the mandatory screening within 45 days of its receipt of the application for screening, it shall be deemed that there is no risk to security and public order in Slovakia or in the EU, and the Ministry shall issue confirmation to this effect to the foreign investor.

How foreign investors can protect themselves

As the FDI Act has yet to enter into force, there is no sufficient body of settled case-law/practices and it may be expected that it will take some time until the procedures settle. Therefore, foreign investors should consider engaging experienced counsel to navigate them through the entire process.

If it is unclear whether a particular foreign investment falls within the mandatory regime, for the sake of certainty, foreign investors could consider (i) consulting the Ministry in this respect (although the FDI Act does not currently anticipate such a consultation regime (and unless a formalized pre-notification procedure is established later), an investor could try to file a non-formalized clarification request to this effect) or (ii) filing an application for a voluntary screening. Further, establishing a good and proactive working relationship with the Ministry's case team will enable the investor to better predict the developments in the proceedings.

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