Foreign investment screening in the Czech Republic
Certain investments made by foreign investors in the Czech Republic may be subject to screening.
The controlling authority for foreign investments is the Czech Ministry of Industry and Trade.
The Ministry’s oversight can extend to investments that have already been completed, with the ability to initiate screenings within 5 years of the investment’s completion if deemed a threat to national security. Investment made in violation of the law may result in severe penalties for the investor.
Are you wondering if your investment in the Czech Republic is subject to investment screening? Read on to find out.
Conditions for Investment Screening
Screening applies to investments made directly or indirectly by a non-EU citizen or by an entity with its seat outside the EU (or entities directly or indirectly controlled by either one).
Another key determinant is the method of investment. The law identifies the following forms of influence that trigger screening requirements:
- exercising of ≥ 10% of the voting rights or a corresponding influence in the target entity;
- membership in a corporate body of the target entity;
- ownership of assets used for the economic activity of the target entity; or
- other form control allowing access to information, systems, or technologies important for the protection of the security of the Czech Republic.
Permit and Consultation
The law differentiates between the obligation to obtain a permit prior to the investment execution and the obligation to consult the investment with the Ministry.
A permit is required for the investments into:
- production, research, development, or innovation of defence equipment;
- operation of critical infrastructure (e.g., energy distribution, large scale agricultural operation, healthcare industry, data centres, networks);
- information or communication systems of critical information infrastructure;
- development or production of dual-use goods.
Consultation is mandatory only for investments into the largest Czech media houses. In other cases, investors may voluntarily consult the Ministry to ensure compliance.
Sanctions
If an investor fails to adhere to the conditions set forth in the Ministry's decision or proceeds with an investment in violation of a prohibition, the Ministry may:
- prohibit or restrict the investor from exercising its ownership or voting rights in the target entity;
- mandate the sale of the target entity or assets, or the participation in the target entity.
In addition to these measures, the Ministry may impose fines. The penalties can amount to 2% of the foreign investor’s total net turnover for the last completed accounting period or up to EUR 4,000,000.
Key Considerations
Foreign investors should bear in mind the following critical points:
- Timing: Applications for investment permits or proposals for consultation must be submitted before the investment is executed.
- Retroactive Applicability: The Ministry may initiate an ex officio screening within five years of the investment’s completion. Investment screening also applies to investments initiated before the Foreign Investment Screening Act came into force, i.e., investments not completed before May 1, 2021.
Conclusion
Given the serious penalties, it is essential to evaluate whether an investment permit or consultation is required. For this reason, voluntary consultation can be a practical approach to enhance legal certainty. If the Ministry determines that an investment does not pose a security risk, it precludes future reviews of the investment.
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Stanislav Dvořák Barbora Bugová |
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