These FAQs are the first part of a two-part series regarding the National Foreign Direct Investment Screening Office Act (Chapter 620 of the Laws of Malta) (the “Act”) which regulates foreign direct investments (“FDIs”) under Maltese law and which came into force by virtue of Act LX of 2020 on the 11th October 2020.
The Act implements 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 (the “Regulation”), the aim of which is to increase trust and ensure intervention in the case of threats to the EU’s security interests and public order.
By virtue of these FAQs, we aim to provide the reader with an understanding of the applicability or otherwise of the Act, as well as highlight the obligations surrounding FDIs under Maltese law.
What is an FDI?
An FDI is defined in the Act as an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links in order to carry on an economic activity in Malta, including investments which enable effective participation in the management or control of a company carrying out an economic activity and any investments made pursuant to a public procurement process.
What is the National FDI Screening Office?
The National Foreign Direct Investment Screening Office (the “Screening Office”) is the office that has been set up in Malta in terms of the Act specifically for the purpose of screening FDIs coming from a third country (non-EU), on grounds of security and public order.
When is the Act triggered?
In terms of Article 4 of the Act, the Act shall apply to FDIs made or planned to be made in Malta and to all persons involved in an FDI.
More specifically, the applicability of the Act is initially triggered when an FDI is made or is to be made in Malta by:
- A foreign investor, which is defined in the Act as a natural person or undertaking of a third country intending to make or having made an FDI in Malta. In turn, an “undertaking of a third country” is defined under the Act as an undertaking constituted or otherwise organised under the laws of a third country; or
- Any undertaking, organisation, foundation or other entity wherein at least 10% of its share is owned by a foreign investor and/or where the beneficial owner of the foreign investor is a third country national or an undertaking of a third country and, or which has any direct or indirect controlling interest by a foreign investor.
In sum therefore, FDI obligations may be triggered under the Act whether the FDI is made:
- directly by a foreign investor (i.e a non-EU national or a non-EU undertaking); or
- indirectly by any undertaking, organisation, foundation or other entity wherein at least 10% of its share is owned by a foreign investor as defined above.
When does the obligation to notify an FDI to the Screening Office kick in, and who has the obligation to notify?
Once the applicability of the Act is established (as detailed above), the obligation to notify an FDI to the Screening Office would arise in the following instances:
i. where the investment planned to be carried out in the future affects either:
a. any of the following activities:
- Critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;
- Critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies;
- Supply to critical inputs including energy or raw materials as well as food security;
- Access to sensitive information including personal data, or the ability to control such information; or
- Freedom and pluralism of the media.
b. any of the following factors:
- Whether the foreign investor is directly or indirectly controlled by government (including state bodies or armed forces) of a third country, including through ownership structure or significant funding;
- Whether the foreign investor has already been involved in activities affecting security or public order in a Member State; or
- Whether there is a serious risk that the foreign investor engages in illegal or criminal activities.
ii. where, having carried out an investment in Malta, there is a plan to change the business activity of the foreign investor which would affect any of the above-stated factors or activities;
iii. where, having carried out an investment in Malta which affects any of the above-stated factors or activities, the ownership structure of the investor changes such that at least 10% is owned by foreign investors; or
iv. where, having carried out an investment, the direct or indirect controlling interest of the company or the group company changes and passes onto a foreign investor.
If any of the above conditions is met, the obligation to notify the Screening Office is triggered. In terms of the Act, the obligation to notify rests with the foreign investor and all persons involved in the FDI.
©Fenech & Fenech Advocates 2021
Disclaimer │ The information provided on this Update does not, and is not intended to, constitute legal advice. All information, content, and materials available are for general informational purposes only. This Update may not constitute the most up-to-date legal or other information and you are advised to seek updated advice.