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 Romania, 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?
Romania is in the process of implementing (EU) Regulation no. 2019/452 through national legislation. A draft government emergency ordinance (“Draft GEO”) was published on the Competition Council’s website for public consultations, but has not yet been adopted.
As of today, Romania has notified only 1 (one) normative act to the EU Commission, pursuant to Article 3.8 Regulation (EU) 2019/452 on the obligation of the member states to notify their national screening mechanisms, namely: The Competition Law no. 21/1996 (more specific, Article 47 para. (9)-(12)). These provisions allow the Government, at the proposal of the Supreme Council of National Defense, to prohibit operations of taking control of enterprises or assets that pose risks to national security.
Definition of FDI
According to Article 2 letter b) of the Draft GEO:
FDI = an investment of any kind made by a foreign investor in order to establish or maintain lasting and direct links between the foreign investor and the entrepreneur, enterprise or its division thereof, which constitutes a unit separate organizational structure, to which these funds are made available or are going to be made available to them for carrying out an economic activity in Romania, and which allow the foreign investor to exercise control over the administration of the economic entity.
A foreign investment is also made when there is a change in the ownership structure of a foreign investor legal entity, if this change in what concerns the legal person makes it possible to exercise control, in a way directly or indirectly, by a:
a natural person who is not a national of a Member State of the European Union,
a legal person whose registered office is not in a Member State of the Union European or,
another legal entity, without legal personality, organized under the laws of a non-member state of the European
Definition of foreign investor
According to Article 2 letter a) of the Draft GEO
A foreign investor is:
a natural person who is not a citizen of a Member State of the European Union who, has made or intends to make a foreign investment in Romania;
a legal person whose registered office is not in a Member State of the Union European Union that has made or intends to make a foreign direct investment in Romania;
a legal person whose registered office is in a Member State of the European Union, which has made or intends to make a foreign investment in Romania, in which the control is exercised directly or indirectly by: a natural person who is not a citizen of a Member State of the European Union, a legal person whose registered office is not in a Member State of the European Union or another legal entity, without legal personality, organized under the laws of a state that is not a member of the European Union;
a trustee of an entity without legal personality that has made or intends to make a foreign investment in Romania or a person in a similar position, if he is not a citizen of the European Union, in case of a natural person, or if it does not have its registered office in a Member State of the Union In the case of a legal person, or if that entity has been incorporated under the laws of a state which is not a Member State of the European
Do the following scenarios trigger the screening?
1. Acquisition of 10% or more of voting rights in the company: It may, but needs to be corroborated with other triggers (e.g., as long as the 10% participation leads to a long-term change in the control structure)
2. Establishment of a new branch: Yes, if it qualifies as “new investment” as per the Draft GEO. “New investment” means initial investment in tangible and intangible assets located in the same perimeter, related to starting a new unit, expanding the capacity of a unit, diversification of a unit's production through products that have not been manufactured previously in the unit or a fundamental change in the general production process of an existing unit. The establishment of a new unit represents the creation of a new one location for carrying out the activity for which funding is requested, technologically independent of other existing units. Extension capacity of an existing unit is an increase in production capacity in the existing location due to the existence of an unfulfilled request. Diversification of production of an existing unit means obtaining products or services that were previously made in that unit.
3. The production of new products: Yes, but needs to be corroborated with other triggers. (e.g., if it qualifies as a “new investment”)
4. Establishment of a new company in which foreign investor will have more than 10% voting rights: It may, but needs to be corroborated with other triggers
5. The transfer of use or operational rights in infrastructure or assets that are indispensable for the operation of strategic companies: Yes, but needs to be corroborated with other triggers.
6. Other screening triggers:
– Situations provided by Competition Law no. 21/1996, Decision no. 73/2012 and Government Emergency Ordinance no. 27/2020, amending the Petrol Law no. 238/2004 need to pose risks to national security.
– Situations provided by NBR Regulation no. 4/2005 need to exert strong pressures on the foreign exchange market and cause serious disruptions in the application of monetary policy and the exchange rate.
Deadline for notification of the relevant screening body
As per the Draft GEO, the FDI cannot be implemented before obtaining an authorization decision issued by the competent national body – the Commission for the Examination of Foreign Direct Investment (CEISD). The exact procedure for submitting the authorization request will be adopted after the Draft GEO enters into force.
Article 9 of the Draft GEO stipulates that CEISD will examine and settle the applications for authorization of FDI, mainly, considering the following:
the potential effects of FDI on:
critical infrastructure, whether physical or virtual, including infrastructure in the field of energy, transport, water, health, communications, media, al data processing or storage, aerospace infrastructure, field infrastructure defense or electoral or financial infrastructure, on sensitive installations, as well as on land and real estate, essential for use such an infrastructure;
critical technologies and dual-use items, as defined in Article 2 (1) of Regulation (EC) No Council Regulation (EC) No 428/2009, including artificial intelligence technologies, robotics, semiconductors and cyber security, aerospace technologies, defense technologies and energy storage, quantum and nuclear technologies, and nanotechnologies and biotechnologies;
supply in relation to critical factors of production, including energy or raw materials, as well as on material security;
access to sensitive information, including personal data, or on the ability to control this information; or
freedom and pluralism of the media.
analyze, in particular: (a) if the foreign investor is directly or indirectly controlled by the government of a third country, including state bodies or its armed forces, including through the ownership structure or significant financing; (b) if the foreign investor has already been involved in activities affecting security or public order in a Member State; (c) if there is a serious risk that the foreign investor will carry out illegal or criminal
CEISD will also analyze the situations provided by Decision no. 73/2012
In the situation where, compared to the specifics, the complexity of the authorization application or its impact on the national security or public order of Romania or on the projects or programs of interest to the European Union, CEISD may deem necessary to consult with the Supreme Council of National Defense (CSAT). CSEID will thus triggers a detailed investigation in relation to the application for authorization and inform the applicant immediately.
Only FDI with a value exceeding EUR 2.000.000 de euro (determined at the exchange rate of NBR in the last day of the year prior to the operation are examined by CEISD. By exception, FDI with a lower value are subject to the examination only if, by their nature, they may have a significant impact on national security or public order or presents significant risks to them.
As per Article 9 para (2) of the Draft GEO, CEISD will issue an examination decision of by which it will settle the applications for authorization of the declared FDI (deemed as complete), as follows:
authorization of FDI in Romania if it considers that they do not affect the national security or public order of Romania and, by their nature, do not affect projects or programs of interest for the European Union;
conditional authorization of FDI in Romania in the situation where it considers that these can be performed through measures /behavioral or structural commitments of the foreign investor; in this situation, the FDI can be made or can continue to exist exclusively within the limits and according to the provisions and conditions specified in the conditional authorization decision;
rejection of the application for authorization of the FDI in the situation where it considers that they affect the national security or public order of Romania or is likely to affect projects or programs of interest for the European Union;
cancellation of the FDI in the situation in which it considers that it has been implemented by breaching the provisions of the Regulation or of the Draft GEO and it affects the national security or public order of Romania or, by its nature, it affect projects or programs of interest for the European Union;
The settlement of the application for authorization is made by CEISD within maximum 60 days from the date on which the application is deemed as complete, meaning that all requested documents and, if the case, requested notices have been submitted.
Are fines or other penalties prescribed due to failure to notify the FDI?
According to Article 12 of the Draft GEO, foreign investors are sanctioned with a fine between 1% and 5% of the total turnover achieved in the year prior to the sanctioning if the commit the following deeds, whether intentionally or through negligence:
providing in an application for authorization of an FDI information which is inaccurate, incomplete or misleading;
the implementation of a FDI without its authorization under the conditions of the Draft GEO;
non-compliance with the behavioral or structural conditions / commitments assumed in a conditional authorization decision issued by CEISD;
The sanctioning decision issued by CEISD can be appealed before the Bucharest Court within 30 days of communication.
By Georgiana Singurel, Partner, Reff & Associates, Deloitte Legal