Legislation

Act no. 34/2021 Coll. on the screening of foreign investments and amendments of related laws (Foreign Investments Screening Act)

The Foreign Investments Screening Act came into force on February 3, 2021 and in effect on May 1, 2021. It establishes rights and duties of foreign investors, whose ultimate beneficial owner is from non-EU countries, in the field of foreign direct investments (FDI) to target persons or owners of target objects in the Czech Republic, which are important from the security point of view of the Czech Republic or its internal or public order.

This law simultaneously implements the Regulation (EU) 2019/452 of the European Parliament and of the Council from 19 March 2019, which lays down the framework for the screening of the FDIs directed inside of the EU.

The main aim of the national screening mechanism is to enable assessment, whether the FDI might have a negative effect on the security of the state or its internal or public order, including impact on critical infrastructure, key technologies, and other important entries, which are key from the security perspective, and loss or destruction of which might have a significant impact on the Czech Republic. In this regard, the law is consistent with recommendations of the National Security Audit, Security Strategy of the Czech Republic, and National Strategy for Countering Hybrid Interference.

The law includes among others:

• establishment of the Ministry of Industry and Trade of the Czech Republic as a statutory body of the government, which conducts the screening
• definition of foreign investor
• definition of foreign investment
• definition of effective degree of control over the target object and person
• definition of the target object and the target person
• description of the screening procedure
• description of the consultation procedure
• administrative periods

The law differentiates between two groups of investments and consequently introduces two screening regimes. The first regime defines a narrow group of the most sensitive areas (Section 7). Foreign investors, who would like to invest in these areas will need approval from the state before the transaction. All other investments, that have the potential to endanger the state security or its internal and public order (Section 8), will be possible to conduct without previous approval. However, the law allows screening of the foreign investments ex officio in these cases in up to five years since the transaction. To gain legal certainty, that the investment will not be contested retrospectively, the foreign investor can voluntarily ask for confirmation that his or her investment is not endangering the security of the Czech Republic or its internal and public order (consultation).

Government Decree no. 178/2021 Coll. establishing a model form of the application for the approval of foreign investment and proposal for consultation 

Government Decree no. 178/2021 Coll. on the establishment of a model form of the application for approval of foreign investment and consultation proposal came in effect on May 1, 2021.

Foreign investors will use it as part of the approval application of foreign investment, which needs approval, or when proposing a consultation.

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

Regulation (EU) 2019/452 of the European Parliament and of the Council, which came in effect on  October 11, 2020, establishes a framework for the exchange of information and cooperation on foreign investments directed into the EU and lays down the base principles, which the member states should follow when establishing national screening mechanisms. The screening of the investment itself and its eventual rejection or approval with conditions referring to the security or protection of public order falls under the exclusive authority of the individual member states. The regulation introduces contact places in the individual member states, which will collect data on the investments from third countries (and inform about screenings of transactions). They will simultaneously comment on the investments in other member states and inform other member states whether they consider the investments risk-prone. Should the European Commission label foreign investment in a target country, that participates in projects of European interest, as risk-prone, the member state, in which’s territory the investment is to take place, accepts the Commission’s opinion to the highest degree possible. These are currently the following projects: Galileo, Copernicus, Horizont 2020, Trans‑European Transport Network (TEN-T), Trans-European Networks for Energy (TEN-E), Trans-European Telecommunications Network (eTEN), European Defence Industrial Development Programme (EDIDP), Permanent Structured Cooperation (PESCO), GOVSATCOM, ITER, and Preparatory Action on Defence Research (PADR).