To introduce a permanent foreign direct investment (FDI) screening mechanism, an amendment to the Investment Promotion Act (Amendment) is expected by the end of June 2023, and the new Prevention of Restriction of Competition Act now foresees a simplified merger review.
I. New Rules for FDI Screening
The validity of Slovenia’s current FDI screening mechanism will expire on June 30, 2023. The Amendment, which is intended to introduce a permanent screening mechanism, includes certain provisions which potential investors will surely welcome. Other changes envisioned by the Amendment will probably have the opposite effect as they could be seen as an additional unnecessary burden to investors and also because they introduce – or fail to resolve – some ambiguities and uncertainties about the review process.
1. Foreign Investor Definition: Due to the all-encompassing definition of a foreign investor under the existing legislation, the current FDI screening regime covers a national or a legal entity from any other country, including nationals and legal entities from other EU member states. According to the Amendment, the scope of this definition will be loosened to exclude investors from other EU member states (however, not if they are directly or indirectly owned by a non-EU entity). In 2021, almost 80% of all foreign investment into Slovenia came from other EU member states. Therefore, excluding these investors from the FDI screening regime will hopefully make Slovenia even more attractive to them.
2. FDI Definition: The Amendment includes a revised definition of an FDI, which covers direct as well as indirect acquisitions of participation in the capital or voting rights and shall apply to the first as well as any subsequent acquisition of a 10% participation in the capital or voting rights.
3. FDI Legal Transaction: Current ambiguous wording has caused some uncertainty as to whether all FDI transactions may be subject to review or only those which concern a merger or a publication of a takeover bid. The Amendment now clarifies that other types of legal transactions may also trigger an FDI notification requirement.
4. Sectors Covered by the FDI Regime: One major shortcoming of the current FDI regime has been the lack of clarity about the types of activities requiring an FDI notification. Unfortunately, the Amendment fails to address this. Activities involving critical infrastructure and the land and real estate crucial for the use of such infrastructure, critical technologies and dual-use items, supply of critical inputs and food security, access to sensitive information, including personal data, or the ability to control such information, media freedom and pluralism, and certain projects or programs of interest to the EU will still trigger an FDI notification requirement. Interestingly, the Amendment leaves out medical, medicinal, and pharmaceutical activities despite the need for FDI screening having been justified precisely by the need to protect national and the EU’s ability to respond to potential future health crises.
5. Review Period: Under the current regime, the competent Ministry issues its decision about a notified FDI transaction within two months following the notification and any transaction which was not duly notified may be subject to an ex officio review for five years following the transaction. The Amendment unifies these deadlines to two years, which introduces additional uncertainty for the investors that will have to be carefully addressed in the transaction documents.
6. Required Information: Another change that investors will not be happy to see is the Amendment’s requirements with respect to the information and documents that must supplement an FDI filing as under the current regime, there is virtually no need to attach any supporting documentation. One new requirement is expected to especially burden the investors: the provision of evidence demonstrating the veracity of the submitted information.
7. New Sanctions: In addition to the existing fine for non-notification of an FDI, the Amendment foresees a fine in case of submission of a non-complete notification as well as non-compliance with the prohibition, cancellation, or conditions imposed for the implementation of the investment.
II. New Competition Protection Act
In January 2023, the new Prevention of Restriction of Competition Act came into force which introduced a much-awaited possibility of the so-called “simplified merger review.” The Competition Protection Agency is already conducting procedures and issuing simplified decisions according to this new mechanism. In our experience, this significantly shortens the review period. However, the last missing piece of the puzzle is not yet available: a simplified notification form which is expected to significantly limit the scope of the information and documents accompanying a merger notification.
By Spela Remec, Partner, Selih & Partners