Foreign Direct Investment (FDI) update

The EU Foreign Direct Investment ("FDI") Screening Regulation (“FDI Screening Regulation”) has installed EU-wide formalised cooperation between Member States and the European Commission on the screening of FDI into the EU. Luxembourg draft legislation establishing an FDI screening mechanism is currently going through the legislative process.

The FDI Screening Regulation, applicable since 11 October 2020, and individual Member State screening legislations, aim to protect security or public order considering the critical nature of certain investment targets in the EU Member States and the risks that investments by certain investments may pose on e.g. critical infrastructure or technologies or sectors such as the health sector. The decision on which investments to screen, approve, condition or block lies with the Member States under their respective rules.

In Luxembourg, Bill of Law 7885 ("Bill" - available in French) establishing an FDI screening mechanism was submitted to Parliament on 15 September 2021. In-scope are FDIs allowing investors from outside the European Economic Area (EEA) to gain effective control of a Luxembourg-based entity carrying out critical activities in Luxembourg. Such FDI will have to go through a mandatory notification and pre-approval procedure.

The scope of the Bill is wide considering the broad definition of a "critical" activity.  These include, in particular, certain activities in the energy, transport and water sector, the health sector (e.g. biotech), the communications sector (including the satellite sector), the aerospace sector (e.g. the exploitation of space resources), the data processing or storage sector, central bank activity and infrastructures and systems relating to the exchange, payment and settlement of securities, and the media sector (notably publishing, audiovisual and broadcasting activities). Also included are research and production activities directly related to these activities, activities likely to allow access to them, or related activities likely to allow access to the premises in which they are exercised. However, simple portfolio investments are explicitly excluded from the FDI Regulation and from the Bill.

The Bill is currently going through the ordinary legislative process and may be amended. Formal adoption can be expected in the course of 2022.

On 23 November 2021, the Commission published its first Annual Report on the application of the FDI Screening Regulation in EU Member States. It follows from the report that, during the reporting period, 24 out of 27 EU Member States either adopted a new national FDI screening mechanism, amended an existing mechanism, or initiated a consultative or legislative process for the adoption of a new mechanism or amendments to an existing one.

For 2020, Member States have reviewed 1,793 investment files upon request for approval relating to FDI into seven reporting Member States, A very high share of files were speedily approved (80%) whereas of the remaining 20% of cases, which were formally screened, again a very high share were approved without conditions (79%) and a small share (12%) were approved with conditions. Only 2% of all formally screened files received a prohibition decision. A list of Member States’ screening mechanisms is available on the Commission’s website under this link.