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 the foreign investments is the Czech Ministry of Industry and Trade. The control may apply even to already completed investments and the Ministry may initiate the control within 5 years from the completion of the investment if it assesses the investment as security-threatening. If the investment is made in violation of the law, the foreign investor faces serious penalties.
Are you wondering if your investment in the Czech Republic is subject to investment screening? If so, the following article will provide you with answers.
Conditions for the investment screening
If the investment into the Czech target entity is directly or indirectly made by a non-EU citizen or by an entity with its seat outside the EU, the investor is considered foreign investor under Czech law, and if further conditions are met, may be subject to investment screening. Another condition for the investment screening is the way in which the investment is made. The law determines the following forms of influence:
- 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 of influence allowing access to information, systems, or technologies important for the protection of the security of the Czech Republic.
The law further distinguishes between the obligation to obtain a permit prior to the investment execution and the obligation to consult the investment with the Ministry.
The permit is required for the investments into:
- production, research, development, and 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.
On the other hand, the consultation is mandatory only in the case of investment into the largest Czech media houses, in other cases there is an option to voluntarily consult the investment with the Ministry.
If the investor violates the conditions set out in the Ministry's decision or carries out the investment in breach of the Ministry's prohibition of the investment, the Ministry may prohibit or restrict the investor from exercising its ownership or voting rights in the target entity. Further, the sale of the target entity, the assets, or the participation in the target entity may be ordered by the Ministry.
The Ministry may also (even together with the above sanctions) impose fines on the foreign investor which may amount to 2% of the total net turnover of the foreign investor for the last completed accounting period or up to EUR 4,250,000.
According to the annual report issued by the Ministry in 2022, there were a total of 12 domestic cases of investment screening in the first year of the effectiveness of the law. During this period, no investment prohibition was issued. However, given the serious penalties, it is always necessary to assess whether an investment permit or consultation is required. For this reason, voluntary consultation is a useful tool to increase legal certainty. If the Ministry decides that the investment is not security-threatening, it excludes the initiation of the control in the future.
Partner, Eversheds Sutherland
|Associate, Eversheds Sutherland|