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Foreign Direct Investment in Central Europe: Austria

Foreign Direct Investment in Central Europe: Austria

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The global pandemic has impacted all markets, with subsequent ramifications for M&A. Investors are now seeking greater protection against general lock-downs and supply-chain disruptions, while governments aim to protect critical supplies and services by imposing new regulations on foreign investment in crucial or strategic industries.

If you are considering investment opportunities in Austria, take a look at this overview to get insight into the regulations on foreign investment in strategic industries.

​The following overview is an extract from the Foreign Direct Investment in Central Europe publication, which gives insight into the regulations on foreign investment in strategic industries in the region.

Have FDI screening rules been implemented (or will they be implemented) in the country?

Yes. On 15 July 2020 the Austrian Parliament adopted a new FDI Screening Act (Investitionskontrollgesetz).

Definition of FDI

FDI is defined as: The direct or indirect acquisition of an Austrian undertaking; of shares in an Austrian undertaking, controlling influence over an Austrian undertaking, or of essential assets of an Austrian undertaking by at least one foreign entity.

Definition of foreign investor

An acquirer is considered a foreign entity if it does not hold citizenship from a member state of the EEA or Switzerland (for natural persons), or if it has its registered seat outside the EEA and Switzerland.

Do the following scenarios trigger the screening?

Acquisition of 10% or more of voting rights in the company: Yes, only for the following, highly sensitive sectors:

  1. defence equipment / defence technology;
  2. critical energy infrastructure;
  3. critical digital infrastructure (in particular 5G infrastructure);
  4. water;
  5. systems that enable data sovereignty of the Republic of Austria; and
  6. research and development in the fields of pharmaceuticals, vaccines, medical devices and personal protective equipment. For this sector, the 10 % threshold temporarily applies until 31December 2022 (COVID-19 crisis).
  • Establishment of a new branch: Yes, if an Austrian undertaking is acquired by a foreign entity and the relevant thresholds are met.
  • The production of new products: No
  • Establishment of a new company in which foreign investor will have more than 10% voting rights: The FDI Screening Act does not explicitly address whether the establishment of a company also falls within its scope. However, the following two aspects are relevant in this context: First, the FDI Screening Act provides that transactions are exempt from the approval requirement where the target is a very small undertaking with less than ten employees and an annual turnover or annual balance sheet total of not more than EUR 2 million. Second, the new FDI screening framework was introduced to control acquisitions of existing Austrian companies. Against this backdrop, we understand that the establishment of a new company does not fall within the scope of the approval requirement if no existing  undertaking is transferred to the new company. If, however, parts of an existing company are contributed to the new company, an approval requirement may arise.
  • The transfer of use or operational rights in infrastructure or assets that are indispensable for the operation of strategic companies: Yes, the FDI Screening Act explicitly provides that contracts which confer the right to use all or essential parts of the assets of a target company, fall within its scope.
  • Other screening triggers: The FDI Screening Act provides that the acquisition of controlling influence also falls within its scope. In this A, the law refers  to the EU Merger Control Regulation which provides (Article 3(2)) that "control" shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by:(a) ownership or the right to use all or part of the assets of an undertaking;(b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.

Deadline for notification of the relevant screening body

The application for approval shall be submitted immediately after the conclusion of the contract which triggers the approval requirement. Note that a notifiable transaction must not be implemented before it has been approved.

Screening procedure

After an application has been submitted to the authorities, they must immediately notify the European Commission in order to initiate the pan- European co-operation mechanism enacted by the FDI-Screening-Regulation. After the expiry of a 35-day period, within which the European Commission and other EU member states may provide comments on the contemplated investment, and a possible extension by another five days, the authorities have one month to review the transaction (Phase I). Within this period, the authorities must either approve the transaction or initiate an in-depth investigation (Phase II). A Phase II procedure runs for two months, within which the authorities may either approve (potentially subject to conditions) or prohibit the transaction.

Screening decision

Within Phase I, the authorities may either approve the transaction or initiate Phase II proceedings. If Phase I expires without the authorities initiating Phase II, the transaction is automatically cleared. In Phase II, the authorities may approve or prohibit the transaction. Different from Phase I, the authorities may also impose conditions in Phase II.

Are fines or other penalties prescribed due to failure to notify the FDI?

Yes. Infringements may be sanctioned with up to three years imprisonment as well as the imposition of fines (generally up to EUR 40,000).

Additional comments on FDI review aspects (e.g. any peculiarities, exemptions, broader definitions etc.).

  1. For investments in other sensitive sectors relevant for public order and/or security the triggering threshold remains at 25% and 50% (voting rights). Part II of the Annex to the FDI Screening Act contains a non-exhaustive list of these sectors, including:
    • critical infrastructure such as energy, information technology, transport, health, food, telecommunications, ;
    • critical technologies and dual use items as defined in Regulation (EC) No 428/2009; these include artificial intelligence, robotics, cybersecurity, quantum and nuclear technology, nano and biotechnology, etc.;
    • supply of critical resources, including energy or raw materials, as well as food security, medicines, vaccines, medical devices and personal protective equipment, ;
    • access to sensitive information, including personal data, or the ability to control such information; and(v) the freedom and pluralism of the media.
  2. Shares of foreign entities shall be added up in case one foreign entity holds an interest of at least 10% in another foreign entity or if one foreign entity has holds controlling influence over another foreign entity. This is also the case where foreign entities agree to jointly exercise their voting rights (shareholders agreements).
  3. The threshold of 10%, 25% or 50% of shares in the target company (these thresholds trigger an approval requirement) is also met if at least two foreign entities terminate a shareholders agreement and if at least one foreign entity (alone) retains a shareholding which meets the relevant
  4. Target companies have to notify the authorities of transactions which fall within the scope of the FDI Screening Act if they have not been informed about an application for approval.

By Mark Lager, Partner, Jank Weiler Operenyi Rechtsanwalte, Deloitte Legal