The Foreign Direct Investment Regulation

29th October 2020

Author: Maria DeBono, Associate

The global nature of many corporate transactions involving subsidiaries and affiliates located all around the world has spurred the need for the enactment of Regulation (EU) 2019/452 (the “Regulation”). Foreign direct investment controls vary in different countries across the globe but prior to the enactment of this Regulation, no comprehensive foreign direct investment screening framework existed at Union level, unlike those in place in the Union’s major trading partners. The aim of the Regulation is not to reduce foreign direct investments (“FDIs”) which remain crucial to the EU’s continued economic growth, competition and innovation but rather, to increase trust and ensure that intervention is possible in the case of threats to the EU’s security and public order that may be part and parcel of such FDIs.


On October 11, 2020, this Regulation became directly applicable in Malta however, the local legislation in relation to same is still in the pipeline. The scope of this Regulation is to establish a framework for the screening of FDIs into the Union on the grounds of security or public order and for a mechanism for cooperation between Member States and between Member States and the European Commission (“EC”). The Regulation also allows the EC to issue opinions on FDIs.

FDIs and Foreign Investors

FDIs are defined in the Regulation “as an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which, the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity”. Essentially and in simpler terms, FDIs can take two different forms:

  • Creation of productive assets by foreigners[1] for example, through the incorporation of a new company or establishment; and
  • Purchase of existing assets by foreigners for example, through mergers and acquisitions or takeovers[2].

A foreign investor is defined in the Regulation as a “natural person of a third country or an undertaking of a third country intending to make or having made a foreign direct investment”. In terms of the Regulation, Member States may maintain, amend or adopt screening mechanisms they deem fit in their territory on the grounds of security or public order however, screening mechanisms shall be transparent and cannot discriminate between third countries.

The Foreign Direct Investment Screening Office

Malta set up its National Foreign Direct Investment Screening Office (the “Office”) earlier on this year. The purpose of this Office is to screen FDIs, joint ventures with a foreign component and the transfer of shares or controlling interests in existing companies where the owner or ultimate beneficial owner (“UBO”) originates from a third country.[3]

Relevant activities and Notification

In determining whether an FDI is likely to affect security or public order, Member States and the EC may consider its potential effects on inter alia the following activities, as listed in the Regulation:

  1. 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;
  2. critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;
  3. supply of critical inputs, including energy or raw materials, as well as food security;
  4. access to sensitive information, including personal data, or the ability to control such information; or
  5. the freedom and pluralism of the media.

The Office has in fact confirmed that these will be the sectors and activities which shall be subject to screening. The Regulation goes further and states that when determining whether the FDI is likely to affect security or public order, Member States and the EC can also take into account whether there is a serious risk that the foreign investor engages in illegal or criminal activities, for example.

Notifications from third country investors must be made to the Office when:

  • the UBO whether existing or new is a “foreign investor” (as defined above) and is an individual who has a direct or indirect economic ownership and/or voting rights of 10% more or control by other means;
  • the investment falls within one of the sectors/activities described above; and
  • where there is a direct, tangible and long-lasting nature within Malta.

The Office has informed that where the above conditions subsist in a cumulative manner, the notification form has to be completed and submitted to the Office before the relevant documentation such as the Memorandum and Articles of Association and any other necessary forms are submitted to the Malta Business Registry. The information to be submitted through such notification includes inter alia, the ownership structure of the foreign investor and of the undertaking in which the FDI is planned or completed, the approximate value of the FDI and the products, services and business operations of the foreign investor and of the undertaking in which the FDI is planned or completed.

Annual Reporting

Moreover, the Regulation also provides for an obligation on Member States to submit an annual report by the 31st of March of each year to the EC covering the FDIs that took place in that Member State and the Member State’s screening mechanisms during the preceding calendar year.

To apply for notification of FDI form Third Countries for Assessment by the Office please follow this link:

© Fenech & Fenech Advocates 2020

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.



[2] Ibid.