Foreign investors into Slovenia, including those from the EU – your foreign direct investment is now subject to screening by the Ministry of Economy

Slightly overshadowed by the adoption of the new state aid measures to support the economy in the COVID-19 outbreak, the new Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the COVID-19 Epidemic (“ZIUOOPE”), effective as per 31 May 2020, brings forward important regulatory changes that will affect M&A transactions in Slovenia.

It sets forth the screening mechanism in which the Ministry of Economic Development and Technology assesses if the foreign direct investment (“FDI”) affects security or public order in Slovenia and can result in prohibition and/or unwinding of the FDI. Acquisitions of 10 % share capital or voting rights can already constitute FDI. Investors face fines of up to EUR 500,000 if they fail to notify their FDI within the set 15 days from entering into the relevant agreement. In several aspects, the FDI screening goes beyond the FDI screening set forth by the FDI Regulation (Regulation 2019/452/EU).

Some further information is provided below.

1. WHO IS SUBJECT TO THE NEW NOTIFICATION OBLIGATION?

These are foreign investors who are intending to make or having made an FDI in the Republic of Slovenia. EU Member States foreign investors, EEA or Swiss foreign investors as well as third country investors all fall within the definition of the foreign investors.

FDI means an investment aiming to establish or to maintain lasting and direct links between the foreign investor and the economic entity with registered seat in Slovenia, by acquiring at least 10 % share in the capital or voting rights.

FDI Notification obligation arises if the FDI is made in the activities which may affect:

• critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate located in the vicinity such infrastructure or crucial for such critical infrastructure;
• 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, defense, energy storage, quantum and nuclear technologies as well as nanotechnologies, biotechnologies, medical and pharmaceutical technologies;
• supply of critical inputs, including energy or raw materials, as well as food security, medical and protective equipment;
• access to sensitive information, including personal data, or the ability to control such information;
• the freedom and pluralism of the media
• certain projects and programs in the interest of the European Union.

In addition to the obligatory notifications, ZIUOOPE also authorises the Ministry of Economic Development and Technology to screen a specific FDI which was a subject of a past transaction. Screenings of past transactions are limited to five years after the completion of the FDI. There are no transitional period rules regarding the FDI notifications based on the agreements already entered into at the time ZIUOOPE entered into force.

2. WHEN IS THE NOTIFICATION DUE?

The notification must be made either by the foreign investor or the target company.

The FDI needs to be notified to the Ministry of Economic Development and Technology in 15 days:

• after the conclusion of the merger agreement or the publication of the takeover bid (ordinary share purchase agreements are not set forth, however, this seems to be an oversight);
• after the incorporation of a corporate entity in Slovenia (if the foreign investor wishes to make an investment in tangible and intangible assets, relating to establishing of a new business unit, expansion of an existing one, diversification of production, or material changes in production process of an existing business unit);
• after the conclusion of an agreement under which the foreign investor or its subsidiary acquired the right to dispose with real estate/land which is crucial to critical infrastructure or real estate/land which are in close vicinity of such material infrastructure.

3. WHAT IS BEING ASSESSED IN THE SCREENING?

The purpose of the screening is to identify if the FDI presents a threat to security or public order of the Republic of Slovenia.

The key substantive criteria for the assessment are set forth very vaguely and in a non-exhaustive manner, leaving the foreign investors to a high degree of uncertainty on the outcome. According to ZIUOOPE, the threat to security or public order exist in particular if the FDI affects to the economic fields stated in the answer to question 1 above (critical infrastructure, critical technologies etc.). The key factors the Ministry shall take into account in the assessment are  especially the (i) presence of governmental (direct or indirect) control over the foreign investor, (ii) foreign investor’s potential prior involvement in activities which affected security or public order in an EU Member State and (iii) presence of a serious risk that the foreign investor is involved in illegal activities.

4. WHAT ARE THE POSSIBLE OUTCOMES OF THE SCREENING?

The commission appointed by the Ministry, which consists of 3 – 10 members, must issue an opinion regarding the FDI. The opinion may approve the FDI, prohibit the FDI, subject the FDI to conditions or even unwind the FDI. The commission submits its opinion to the Minister of Economic Development and Technology. The Ministry then issues a decision on the basis of the aforementioned opinion.

If the Ministry prohibits or unwinds the decision, the transaction or legal act, which was the basis for the FDI, is null and void.

5. WHAT INFORMATION IS REQUIRED TO BE NOTIFIED?

The notification must be made in Slovenian language. It shall include, among others, information about the foreign investor as well as the target, their annual turnovers and ownership structures, sources of financing of the FDI, list of countries where the foreign investor and the target company carry out relevant business operations and the information of when the FDI shall be completed or has been completed.

6. WHAT IS THE APPROXIMATE DURATION OF THE SCREENING?

The Ministry must issue a decision within 2 months after having received the notification. However, this deadline will likely start to run after the notification is considered complete, meaning that if the authorities requests for it to be supplemented, the aforementioned 2-month deadline would only start to run after the authorities had received the supplementation of the notification.

7. WHAT PENALTIES MAY BE IMPOSED IN CASE OF FAILURE TO NOTIFY?

Failure to notify may result in a fine from 100.000 EUR up to 250.000 EUR for small companies. A fine between 200.000 EUR and 500.000 EUR may be imposed to medium and large companies. Sole entrepreneurs are exposed to a fine between 50.000 EUR and 150.000 EUR. Responsible person within the legal entity may be fined up to 10.000 EUR.

8. WHAT ARE THE LEGAL REMEDIES?

An appeal against the Ministry’s decision may be made to the Government of the Republic of Slovenia.