Revised rules for foreign direct investment screening

The mechanism for the foreign direct investment screening was first introduced into the Slovenian legal system within the framework of intervention legislation, with the Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the COVID-19 Epidemic[1] (hereinafter: ZIUOOPE), which was in force from 31 May 2020 until 30 June 2023. After the final expiry of validity of the intervention legislation, the legislator regulated the foreign direct investment screening in Investment Promotion Act[2]  (hereinafter: ZSInv), with the amendment ZSInv-C, which entered into force on 1 July 2023, thus representing a permanent regulation of the respective area in the Republic of Slovenia.

Unlike the previous arrangements, the new mechanism narrows the scope of investors liable for notification, as according to ZSInv a third-country citizen or a legal entity with its registered seat in a third country, that intends to carry out foreign direct investment in the Republic of Slovenia or has already done so (whereas the third country is a country that is not a member of the European Union) is defined as foreign investor. To ensure the completeness and accuracy of the foreign direct investment screening, ZSInv additionally specifies that the foreign investor is also a citizen of a third country, or a legal entity based in a third country, that directly or indirectly holds at least 10% of the capital or voting rights in a legal entity with its registered seat in European Union. The definition of a foreign direct investment includes both indirect and possible further foreign investments, since the new legislation clearly states that the first and every subsequent direct or indirect acquisition of at least 10% of the share capital or voting rights constitutes a foreign direct investment.  

Foreign direct investment must, as before, be notified within 15 days from the conclusion of the legal transaction or from the publication of the takeover bid, and within 15 days from the entry of the newly established company into the register in the Republic of Slovenia in the case of greenfield investments. The new legislation continues to define critical activities, where potential foreign direct investment may pose a threat to the security and public order of the Republic of Slovenia (surprisingly, the list now no longer includes health, medical and pharmaceutical technology, and equipment, which was included among critical activities with intervention legislation).[3]

The new legislation comprehensibly defines the criteria and the decision-making process on notified foreign direct investments, which is important in the light of improving the predictability and attractiveness of the business and investment environment in the Republic of Slovenia.[4] ZSInv separates the screening process into a preliminary review process, in which the decision on conducting a thorough review is made based on predetermined conditions and criteria, and the review process. The preliminary review process is led by the Notification Commission, established in accordance with the law by the Minister of Economy, Tourism and Sport, and the review process by an Expert Group (also appointed by the competent minister, namely for the review of each individual foreign direct investment). The latter process is initiated by the decision of the ministry only if the Notification Commission determines that the foreign direct investment falls under critical activities and that it could have an impact on public order and security in the Republic of Slovenia. The review process ends with the decision of the Ministry of Economy, Tourism and Sport, issued based on Expert Group opinion. The Ministry of Economy, Tourism and Sport continues to be the contact regarding the implementation of the Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union in the Republic of Slovenia.[5]

It should be noted that the deadlines for rendering the decision in the screening process in the new mechanism are much longer than the deadlines set by ZIUOOPE. The latter stipulated that the ministry must issue a decision no later than two months after notification, while the ZSInv allows an Expert Group up to two years to prepare an opinion (if the ministry decides to carry out the review process), and the ministry must then issue a decision within two months of receiving said opinion. From the perspective of potential foreign investors, it is concerning that ZSInv is not setting a deadline for issuing a decision in the preliminary review process. Nevertheless, the procedural provisions of the General Administrative Procedure Act[6] (see Articles 1 and 3) should be applied in this part.

The assessment criteria whether an individual foreign direct investment poses a threat to the security or public order of the Republic of Slovenia are as before defined only by way of example. They are determined in accordance with the Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, while the additional criteria are provided considering the principles of the Takeovers Act,[7] Prevention of Restriction of Competition Act[8] and the Decree on State-owned Assets Management Strategy.[9]

When negotiating and planning transactions in the Republic of Slovenia potential foreign investors will have to consider the newly adopted permanent mechanism for foreign direct investment screening, both from the perspective of its applicability in individual case and its timing implications. Special attention should be paid also to correct, content-complete notification, as the new regulation foresees a fine for incomplete notification as well.[10]

[1] Official Gazette of Republic of Slovenia no. 80/20, 152/20 – ZZUOOP, 175/20 – ZIUOPDVE, 203/20 – ZIUPOPDVE, 15/21 – ZDUOP, 112/21 – ZIUPGT in 206/21 – ZDUPŠOP.

[2] Official Gazette of Republic of Slovenia, no. 13/18, 80/20 - ZIUOOPE, 203/20 - ZIUPOPDVE, 204/21, 29/22, 65/23.

[3] In accordance with the Draft of the Act amending Investment Promotion Act (ZSInv-C) of 4 May 2023, these activities are determined in line with the first paragraph of Article 4 of the Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union and the Guidelines regarding direct foreign investment, the free movement of capital from third countries and the protection of strategic sectors, published by the European Commission on 26 April 2020. The provision allows member states, when determining whether a foreign direct investment can have effect on security or public order, to consider, inter alia, its possible effects on critical infrastructure, critical technologies and dual-use goods, the supply of critical resources, access to sensitive information, and freedom and pluralism of the media. Hence, the provision allows member states sufficient room to determine in more detail critical activities in which foreign direct investment may pose a threat to the security and public order of the country.

[4] Namely, the previous regulatory framework, set out in the ZIUOOPE, did not foresee the ministry's response to notified foreign direct investments, which reduced the legal certainty of foreign investors and other participating entities.

[5] The contact is responsible for annual reporting to the European Commission and for the exchange of information, opinions and comments with the European Commission and member states.

[6] Official Gazette of the Republic of Slovenia, no. 24/06 – official consolidated text, 105/06 – ZUS-1, 126/07, 65/08, 8/10, 82/13, 175/20 – ZIUOPDVE and 3/22 – Zdeb.

[7] Official Gazette of the Republic of Slovenia, no. 79/06, 67/07 – ZTFI, 1/08, 68/08, 35/11 – ORZPre75, 105/11 – dec. US, 10/12, 38/12, 56/13, 63/13 – ZS-K, 25/14 in 75/15.

[8] Official Gazette of the Republic of Slovenia, no. 130/2022.

[9] Official Gazette of the Republic of Slovenia, no. 53/2015.

[10] According to new rules, violation of the obligation to notify, failure to comply with the conditions for making an investment, and violation of reporting obligations are also defined as misdemeanours. The fine for medium-sized and large companies is set in the range from EUR 200,000.00 to EUR 500,000.00, and for other companies from EUR 100,000.00 to EUR 250,000.00. The fine for independent entrepreneurs ranges from EUR 50,000.00 to EUR 150,000.00, and for natural persons from EUR 1,000.00 to EUR 5,000.00. The responsible person of a legal entity or entrepreneur can be fined from EUR 2,000.00 to EUR 10,000.00.